The Evening News - Tuesday, March 25, 1997

HEROES

ADVANCED FIBRE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFCI)") else Response.Write("(Nasdaq: AFCI)") end if %> picked up $3 to $35 3/4 after the telecom equipment company announced a three-year contract to supply GTE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %> with its UMC 1000 local loop switching products. The product supports a number of different connections, from hundreds of POTS (plain old telephone service) lines to wireless to HDSL connections, allowing GTE to insert points-of-presence inside the local loops of the Baby Bells or on the premises of large corporate users. Advanced Fibre came public at a very attractive price in the third quarter of last year, and is sporting better than 100% revenue growth year-over-year.

Electronics contract manufacturer SCI SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCIS)") else Response.Write("(Nasdaq: SCIS)") end if %> gained $3 1/2 to $52 3/4 after Swedish wireless equipment company ERICSSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> announced that it has awarded SCI and SOLECTRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> with a contract to supply the company with printed circuit boards. Ericsson has been steadily reducing its fixed asset commitments -- last year, it sold one of its production facilities in Sweden to circuit board company FLEXTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FLEXF)") else Response.Write("(Nasdaq: FLEXF)") end if %>, the stock of which was somewhat indifferent to today's announcement.

QUICK TAKES: Pharmaceutical contract research organization CHIREX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRX)") else Response.Write("(Nasdaq: CHRX)") end if %> gained $1 5/8 to $11 1/8 after SEPRACOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEPR)") else Response.Write("(Nasdaq: SEPR)") end if %> announced it has completed a sale of Chirex stock that it held, and said the sale wouldn't affect the relationship between the two... VCRPlus+ company GEMSTAR INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GMSTF)") else Response.Write("(Nasdaq: GMSTF)") end if %> gained $1 1/4 to $11 1/4 after announcing that it has passed through the Hart-Scott-Rodino regulatory waiting period and will now complete its merger with TV program guide company STARSIGHT TELECAST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SGHT)") else Response.Write("(Nasdaq: SGHT)") end if %>... COVENTRY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CVTY)") else Response.Write("(Nasdaq: CVTY)") end if %> rose $1 3/4 to $12 1/8 after the managed care company's parent, HealthAmerica Pennsylvania, brought on a new Chief Operating Officer... Global cellular phone company MILLICOM INTERNATIONAL CELLULAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MICCF)") else Response.Write("(Nasdaq: MICCF)") end if %> gained $4 5/8 to $40 1/8 after announcing it will spin off its Asian operations and possibly sell its Latin American holdings... AMRESCO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMMB)") else Response.Write("(Nasdaq: AMMB)") end if %> rose $1 5/8 to $16 3/4 after the real estate financial services company said it will purchase Commercial Lending Corp. for about $42 million, which it expects will add to earnings in the first year of the combination... IOMEGA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %> jumped $2 3/4 to $16 7/8 after Emerald Research issued a report on the company, which it says will be available after 7:30 PM at www.emeraldresearch.com... Electronic commerce services firm CHECKFREE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CKFR)") else Response.Write("(Nasdaq: CKFR)") end if %> moved $1 3/8 higher to $12 5/8 on announcing an agreement with FundTech Corp. to set up WireNext, a multi-bank wire transfer system... SIMULA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMU)") else Response.Write("(NYSE: SMU)") end if %> didn't simulate, but actually did gain $1 3/8 to $15 3/8 after announcing that it booked $65 million in business during its first quarter... Air conditioning distributor WATSCO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: WSO)") else Response.Write("(AMEX: WSO)") end if %> added $1 3/4 to $26 1/2 after it said that two Carrier distributorships it acquired will add to earnings... ELECTRONICS FOR IMAGING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EFII)") else Response.Write("(Nasdaq: EFII)") end if %> gained $2 15/16 to $40 15/16 after Investor's Business Daily painted the company as a picture in prudence today when the company said it won't use its $212 million cash hoard for acquisitions because it sees targets as being too pricey... Healthcare information company PHAMIS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHAM)") else Response.Write("(Nasdaq: PHAM)") end if %> jumped $3 3/8 to $22 1/4 before making an announcement after the market closed that it will merge with industry cohort IDX SYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDXC)") else Response.Write("(Nasdaq: IDXC)") end if %> in a deal valuing each Phamis share at 0.73 IDX shares.

GOATS

Mini-mill steel company NUCOR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NUE)") else Response.Write("(NYSE: NUE)") end if %> lost $2 3/4 to $46 7/8 after President John Correnti said in a Reuters interview today that first quarter estimates were too high at $0.81 per share because of start-up costs at its Berkeley, South Carolina facility. He also said that steel prices would be flat at worst and up 3% to 4% at best over the next year. Furthermore, results for Nucor depend more upon demand than foreign competition: "Most of what we see coming in is Russian material.... It's pretty close to junk." Correnti reiterated guidance that he has made public before -- that Nucor expects to report Q1 earnings of $0.70 per share (slightly down from last quarter before a LIFO inventory adjustment) with EPS to increase $0.10 each quarter for the rest of the year. In other words, the company just endorsed the median estimate for fiscal year 1997 earnings at $3.40.

More pre-announcement casualties make it to the goats column today. Embedded systems software company INTEGRATED SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTS)") else Response.Write("(Nasdaq: INTS)") end if %> fell $5 3/4 to $11 3/8 after pre-announcing Q4 earnings of $0.10 to $0.11 per share, below estimates of $0.19. NETWORK PERIPHERALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NPIX)") else Response.Write("(Nasdaq: NPIX)") end if %> slid $2 1/8 to $8 5/8 after it announced that its sales mix has been disappointing, but that it is counting on fast ethernet switching sales to pick up the slack. Wireless equipment company AML COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMLJ)") else Response.Write("(Nasdaq: AMLJ)") end if %> lost $2 7/16 to $4 5/16 after saying that personal communications systems (PCS) buildout transitions are hurting sales. INTERNATIONAL IMAGING MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMAK)") else Response.Write("(Nasdaq: IMAK)") end if %> fell $2 1/4 to $16 3/4 after the thermal bar-code ribbon company, which supplies companies such as ZEBRA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZBRA)") else Response.Write("(Nasdaq: ZBRA)") end if %>, pre-announced Q4 EPS of $0.28 to $0.30, below estimates of $0.37.

Environmental services company WHEELABRATOR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WTI)") else Response.Write("(NYSE: WTI)") end if %> fell $1 to $12 7/8 after announcing that it will defer indefinitely its planned Dutch auction stock buyback of up to $350 million. Its parent company, WMX TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %>, earlier this year announced a massive restructuring. Wheelabrator told Reuters today that it wants to maintain financial flexibility for whoever the new CEO turns out to be -- although analysts thought there was a little more wiggle room than this.

QUICK CUTS: Data storage management software company LEGATO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LGTO)") else Response.Write("(Nasdaq: LGTO)") end if %> lost $2 5/8 to $16 1/8 after Hambrecht & Quist downgraded its rating on the company to "buy" from "strong buy"... HCIA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HCIA)") else Response.Write("(Nasdaq: HCIA)") end if %> fell another $3 3/8 to $20 5/8 after yesterday's blow-up at healthcare information systems company MEDIC COMPUTER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCSY)") else Response.Write("(Nasdaq: MCSY)") end if %> renewed concerns about the industry... Heating and air conditioning services company AMERICAN RESIDENTIAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARS)") else Response.Write("(NYSE: ARS)") end if %> dipped $1 1/8 to $21 1/8 after announcing three acquisitions that will add $14 million in annualized revenues to its "consolidate a fragmented industry" model... JAMES RIVER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JR)") else Response.Write("(NYSE: JR)") end if %> lost $1 3/4 to $30 3/4 and BOISE CASCADE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCC)") else Response.Write("(NYSE: BCC)") end if %> fell $1 5/8 to $31 1/8 after Merrill Lynch frowned on many companies in the forest products industry this morning.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Low-Ball Direct

GLOBAL DIRECTMAIL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GML)") else Response.Write("(NYSE: GML)") end if %> joined hands today with MICRO WAREHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MWHS)") else Response.Write("(Nasdaq: MWHS)") end if %> and MULTIPLE ZONES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MZON)") else Response.Write("(Nasdaq: MZON)") end if %> at the bottom of the direct mail crater. The Port Washington, New York-based direct marketer plunged $7 1/2 to $20 1/2 after the company issued comments about first quarter sales and earnings. Global DirectMail believes that net revenues in the first quarter will grow when compared to the prior quarter and stressed that earnings will be in line with what the company made in the prior two quarters, its two strongest quarters in fiscal 1996. Unfortunately for investors, the company only earned $0.28 per share and $0.31 per share in its last two quarters, numbers that do not compare very favorably to the $0.36 per share that analysts were expecting according to First Call. Although an unfortunate occurence for shareholders of the company, this drop has been seen as coming for months for those paying attention to Global's competition.

Exacerbating the downward slide of Global DirectMail are concerns about the entire computer-related direct sales industry. Over the past few months, high profile names like Micro Warehouse and Multiple Zones have been crushed due to flagging results, earnings restatements, and the general implosion of Apple Computer. The bad news began back on June 6th when Micro Warehouse dropped $11 7/8 to $22 7/8 after the firm warned of disappointing earnings due to weak Macintosh sales. News broke in mid-October that that company would have to restate prior earnings due to accounting irregularities, culminating in the December 19th purge after clarifying the degree to which earnings would have to be restated. Micro Warehouse went down $7 1/2 to $12 1/2 in one day, forecasting weak earnings for the next quarter along the way. In one year's time, Micro Warehouse fell from $45 to $12.

At the same time Micro Warehouse was getting crushed, Macintosh-centric Multiple Zones was also taking a dive after announcing sales weakness. Because Multiple Zones generated 75% of its revenues from its Mac Zone catalog, the annihilation of Apple's consumer PC market share hit it harder than most. Multiple Zones had hit a high of $27 and change back in October after its June initial public offering, but currently wallows down around $10 a share, where the December news release left it. At that time the news pulled Global DirectMail down from its perch in the low $50s to the low $40s, but the company quickly recovered as analysts stressed that the news from Micro Warehouse and Multiple Zones had been driven by poor Macintosh sales, not weak demand for PC-related products from direct mail vendors.

The valuations on the direct mail crew have been driven by the stellar performance and execution of CDW COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDWC)") else Response.Write("(Nasdaq: CDWC)") end if %>, a company that has consistently bested analyst expectations over the last two years. In the space of a few weeks in July and August of 1996, CDW Computer went from the high $30s to the high $60s after reporting strong quarterly results. When the company was selling for more than 2.0 times sales with operating margins in the 6% to 8% range, not all were sanguine about the valuation. In the special "Ticker Treat & Scary Stocks" Halloween collection, both CDW Computer and Global DirectMail were highlighted as companies whose valuations were excessive considering their basic business models. The companies were being given multiples of 40 or 50 based on earnings growth alone in a highly competitive, low-return industry where they were able to do very little to differentiate their products and services from one another.

Global DirectMail really began to hit the skids yesterday, dropping $2 to $28 on decent volume. Today the company punched through its 52-week low after management confirmed in a roundabout way that first quarter earnings would not meet expectations. In many ways, given the valuation and the problems both Micro Warehouse and Multiple Zones were enduring, these fundamental problems in the basic business had been telegraphed months ago. The company's slide today as well as the weakness over the past few months in the shares of CDW Computer point to the underlying importance of following what is going on with competitors in an industry in addition to focusing on the specific stock that you own. Paying attention to the valuation of the company in relation to its operating margins as well as looking at variables like earnings growth can help to identify businesses that are in fiercely competitive industries, helping investors to avoid paying inflated prices for companies that on the surface look like strong prospects.

CONFERENCE CALLS

CUSTOM CHROME <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSTM)") else Response.Write("(Nasdaq: CSTM)") end if %>
(800) 921-9434 -- replay available 3/24 only

ROSS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
(402) 222-9905 -- replay available through 3/25

ECHLIN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
(800) 683-1535 (password: New Leader) -- live and replay thru 3/28

03/26/97 (Wednesday)
COREL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COSFF)") else Response.Write("(Nasdaq: COSFF)") end if %>
(416) 626-4153 (code: 1204) -- replay avail. for 24 hours

ANOTHER FOOLISH THING
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Randy Befumo (MF Templar), a Fool
Fool On the Hill

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Heroes & Goats

Brian Bauer (MF Hoops), one more Fool
Editing

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