The Evening News - Thursday, March 27, 1997

HEROES

Generic drug company BARR LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BRL)") else Response.Write("(AMEX: BRL)") end if %> picked up $3 to $39 1/2 after yesterday's bounce, which came courtesy of FDA approval for the company to market its Warfarin Sodium drug -- a low-cost alternative to DuPont-Merck's branded anti-coagulant Coumadin. That drug is the 11th most prescribed drug in the country with sales of over $500 million. The approval marks a major step by the company to diversify its product line and realize its pipeline opportunities in being first or second to market with high-value generics. While other highly regarded generic drug companies such as WATSON PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WATS)") else Response.Write("(Nasdaq: WATS)") end if %> have dropped from recent highs and the entire industry is still looking weak on pricing, Barr today punched through to a new 52-week high.

APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> scampered $1 7/8 higher to $18 5/8 as ORACLE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> Chairman Larry Ellison may make a run at the company along with his friend, Apple co-founder Steve Jobs, according to the San Jose Mercury News, Silicon Valley's hometown newspaper. "Now is the time" to rescue Apple from Gil Amelio and his management team, Ellison made clear in his interview with the paper. Trade magazines such as Mac Week have questioned whether the latest Apple restructuring will really be effective, in that Amelio didn't justify the cuts in a plain-enough matter and that he may have cut the wrong things by dumping key parts of the Mac OS and keeping the money-draining Newton. Ellison acklowledged that this is a trial balloon idea, but he thinks "Apple can be saved."

QUICK TAKES: Colorado Springs airline WESTERN PACIFIC AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WPAC)") else Response.Write("(Nasdaq: WPAC)") end if %> gained $1 5/16 to $6 15/16 after reporting Q4 results this morning... TOWER SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSEMF)") else Response.Write("(Nasdaq: TSEMF)") end if %> picked up $1 3/8 to $9 3/4 after Bear Stearns raised its rating on the Israeli wafer foundry to "buy"... Medical device company MEDTRONIC INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> gained $4 to $62 3/8 on announcing that it has entered into an agreement to develop robot-assisted surgical products... Industrial vacuum pump firm PFEIFFER VACUUM TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PV)") else Response.Write("(NYSE: PV)") end if %> rose $1 1/8 to $22 1/2 after reporting year-end earnings per share (EPS) of $1.29, beating estimates of $1.20... UNITED ILLUMINATING CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UIL)") else Response.Write("(NYSE: UIL)") end if %> gained $1 1/4 to $25 7/8 after saying Q1 EPS will be a little light, but that it is in a position to continue its dividend... TRIARC COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRY)") else Response.Write("(NYSE: TRY)") end if %> added $1 5/8 to $17 3/8 after announcing that it will purchase the Snapple brand from QUAKER OATS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OAT)") else Response.Write("(NYSE: OAT)") end if %>, which is happy to bid that hassle adieu.

GOATS

Correction: Big boo-boo. Last night, we incorrectly identified KCAL-TV as the Los Angeles NBC affiliate in our story on YOUNG BROADCASTING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YBTVA)") else Response.Write("(Nasdaq: YBTVA)") end if %>. That VHF station is actually the only one of the company's properties that is not affiliated with a network, which changes our analysis somewhat.

Computer telephony products company DIALOGIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DLGC)") else Response.Write("(Nasdaq: DLGC)") end if %> fell $7 5/8 to $19 5/8 after announcing that it doesn't expect to meet earnings expectations of $0.31 per share for the first quarter due to lower-than-expected sales of $54 to $57 million. The company is in a "turns environment" right now, meaning that it is able to turn an order around and ship it almost instantaneously. While the company expects at least an 11% increase in year-over-year revenues, it says the year started out slowly.

Financial companies of every stripe declined on cue today as the 30-year bond broke through the 7% barrier for the first time in recent memory. Among money-center and super-regional banks, J.P. MORGAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JMP)") else Response.Write("(NYSE: JMP)") end if %> lost $2 3/4 to $102 3/4; CHASE MANHATTAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> dropped $ 3 1/2 to $ $96 3/8; and FIRST UNION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %> fell $3 3/4 to $83 3/8. Negative psychology also hit the always neurotic valuations on brokerages and money managers, as PAINE WEBBER GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PWJ)") else Response.Write("(NYSE: PWJ)") end if %> fell $1 3/4 to $29 7/8, and FRANKLIN RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEN)") else Response.Write("(NYSE: BEN)") end if %> slid $2 1/8 to $54 1/4. Insurance companies were bruised, too. AMERICAN INTERNATIONAL GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIG)") else Response.Write("(NYSE: AIG)") end if %> lost $3 5/8 to $121 5/8; CHUBB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CB)") else Response.Write("(NYSE: CB)") end if %> ticked down $2 to $55 1/2; and GENERAL RE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRN)") else Response.Write("(NYSE: GRN)") end if %> lost $4 1/8 to $161. Diversified financial services company BENEFICIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BNL)") else Response.Write("(NYSE: BNL)") end if %> also shed $4 7/8 to $65 7/8.

Financial transaction processor CHECKFREE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CKFR)") else Response.Write("(Nasdaq: CKFR)") end if %> lost $1 to $11 after MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> said it will eliminate user fees for online banking done through its Microsoft Money software. Some believe that investors' reactions might be misguided, since Checkfree may benefit from greater online payment activity. INTUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %>, which makes Quicken, the premiere personal finance software package, and does business with Checkfree, lost $1 3/4 to $23 3/4.

QUICK CUTS: BRE-X MINERALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BXMNF)") else Response.Write("(Nasdaq: BXMNF)") end if %> fell $9 31/32 to $1 13/32 as investors rushed for the exits, disbelieving the company's claims that it has tens of millions of ounces of gold resources in the ground in Indonesia... Computer programming and consulting company COTELLIGENT GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COTL)") else Response.Write("(Nasdaq: COTL)") end if %> lost $3 1/2 to $10 1/2 before announcing after the close of trading that it will report Q4 EPS of $0.15 to $0.17, missing estimates of $0.21... SOFTWARE SPECTRUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSPE)") else Response.Write("(Nasdaq: SSPE)") end if %> was trimmed $4 1/8 to $16 after the business software company said February and March sales will not make up for the weak month of January... Liposome and lipid-based pharmaceuticals company SEQUUS PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEQU)") else Response.Write("(Nasdaq: SEQU)") end if %> fell $1 1/2 to $7 1/8 after the company said it expects Q1 revenues to fall up to 14% sequentially... SUTTON RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STTZF)") else Response.Write("(Nasdaq: STTZF)") end if %> lost $3 3/8 to $17 3/8 after the Canadian-based mining company was caught up in the Bre-X trading mini-panic on the Toronto Stock Exchange... Natural gas pipeline company NGC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NGL)") else Response.Write("(NYSE: NGL)") end if %> fell $4 to $15 3/8 on announcing that it will record up to $28 million in charges in the first quarter for hedging losses and inventory write-down.... DAL-TILE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DTL)") else Response.Write("(NYSE: DTL)") end if %> lost $3 1/2 to $15 1/2 after the ceramic tile company said Q1 revenues will be flat compared to last year due to information systems glitches with recently-acquired American Olean Tile... Number-five long-distance company FRONTIER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRO)") else Response.Write("(NYSE: FRO)") end if %> slid $2 1/2 to $18 on announcing that it expects to report Q1 EPS of $0.22 to $0.25 (before charges), below estimates of $0.30... Diamond cutter and marketer LAZARE KAPLAN INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: LKI)") else Response.Write("(AMEX: LKI)") end if %> fell $3 1/8 to $15 on reporting Q3 EPS of $0.38, which fell short of last year's Q3 results of $0.47 per share... GOLDEN STAR RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GSR)") else Response.Write("(AMEX: GSR)") end if %> fell $1 to $11 7/8, another victim of the severe downdraft in Canada.

FOOL ON THE HILL
An Investment Opinion by MF Templar

When the Mo Stops

[Note: Have you ever wanted to tell Randy Befumo (MF Templar) what for? This is your big chance. The Fool News columnist will be attending the Motley Fool April Fool's Day Party in San Francisco to meet with Foolish investors and explain how he pens two columns a day and still has time to play foosball.]

The last few weeks have seen a number of shooting stars finally fall to earth. Issues that once burned bright with valuations that discounted two to three years of strong growth have now eroded. Technology information services concern GARTNER GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GART)") else Response.Write("(Nasdaq: GART)") end if %> is one of this group, down $3 1/4 to $20 3/8 today on twelve times normal volume to strike a new low. As investor optimism about stocks begins to cool due to a number of factors that could change the way stocks are valued by the public market, former darlings are seeing their valuations reappraised in the cold, cruel light of what they are able to do this quarter -- not in eight or twelve quarters.

For months, Gartner had been accorded a stratospheric valuation based on the high degree of recurring revenues its customers generate. Like META GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: META)") else Response.Write("(Nasdaq: META)") end if %>, FORRESTER RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORR)") else Response.Write("(Nasdaq: FORR)") end if %>, INTELLIQUEST INFORMATION GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IQST)") else Response.Write("(Nasdaq: IQST)") end if %> and PRIMARK'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PMK)") else Response.Write("(NYSE: PMK)") end if %> Yankee subsidiary, Gartner helps businesses make technology decisions. Which accounting software system should you implement? What database vendor really has the best product for your particular needs? Through its cadre of analysts at DataQuest, its monthly Gartner newsletter, and various decision support software products it has developed and updates regularly, Gartner Group strives to help customers answer these types of questions

Information about information technology is in constant flux. As a result, when a customer signs a contract with Gartner Group, they tend to renew it year after year in order to stay abreast of what is going on in the industry. More than 90% of Gartner's client base renews, giving them a nice stream of predictable income. On top of this, Gartner's main overhead expense is its expansive staff of researchers, giving the company fat operating margins of 20.8% in the last fiscal quarter. This combined with the company's 36.1% revenue growth over the past five years made the company very attractive to investors for quite some time, with the company trading at more than 11 times sales at its high earlier this year.

So what has happened to change the picture? Gartner's regular outperformance of earnings estimates and its high-speed growth rate made it a favorite of momentum-style investors. These are the very investors who over the past few months have seen tried and true strategies that have earned them high returns for more than five years start to fizzle. From networking to software to semiconductors, the casualties have been many and have plunged the portfolios of many once popular professional managers into double-digit negatives. Paying 11 times sales and 63 times forward earnings for a company, even one as great as Gartner, has suddenly become taboo.

Today's slump in Gartner shares came after a Smith Barney analyst initiated coverage with a second quarter estimate of $0.16 EPS, below the current consensus of $0.18 EPS. Gartner earned $0.19 EPS in a blow-out first quarter, meaning that either way, the momentum of the company's quarterly earnings seems to be slowing down. In this particular case, Gartner's reputation for stability worked against it, as the high number of renewals give analysts a lot of visibility on what earnings in a particular quarter are going to be. The Street reacted under the assumption that the new Smith Barney analyst is including recent information that the consensus estimates do not yet reflect, given analyst Brandt Sakakeeny's recent contact with the company. The fact that the Deutsche Morgan Grenfell reiterated its estimates of $0.18 EPS for the quarter did not seem to help the company. Gartner earned $0.12 EPS in the year ago period.

The news rippled across the information technology services business, bringing down a number of the related players. COGNIZANT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CZT)") else Response.Write("(NYSE: CZT)") end if %>, which owns 51% of Gartner, slumped $1 5/8 to $29 5/8. Earlier in the year, Cognizant said it was not committed to maintaining its 51% stake if Gartner increases its shares outstanding, news that initially knocked Gartner off of its high. Some believe that this news release has been interpreted as a sign that Cognizant might sell its stake, although on the surface this appears incorrect. Meta Group also fell $1 to $19 1/4, well below its $31 high. Forrester Research was flat at $18, although the company is not even close to the $29 high it hit shortly after its initial public offering a few months ago.

As always seems the case with ex-momentum stocks, the best time to consider initiating a position is when things appear darkest for the company. With Gartner reporting its earnings in less than three weeks on April 17th, the thought that it might miss its $0.18 EPS consensus estimates is absolutely paralyzing to the momentum crowd. This same crowd -- which was buying the stock at 11 times sales -- is now selling the company at 4.5 times sales. Where before the valuation on forward earnings estimates was 63 times, it is now down to a mere 20 times for a company that even if it only makes $0.16 per share next quarter will grow earnings by 33%. One top of all of this, more than 7.5% of the current share price is backed up by cash and short-term investments, and the company does not have a lick of long-term debt. Investors who have liked Gartner and have been scared away because of the valuation can now start to take a closer look at the shares.

CONFERENCE CALLS

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

THIS WEEK'S CONFERENCE CALL SYNOPSES

ADOBE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %> Q1 Conference Call
APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> Restructuring Announcement
APOLLO GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APOL)") else Response.Write("(Nasdaq: APOL)") end if %> Q2 Conference Call
BRODERBUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> Q2 Conference Call

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MORE FOOLISHNESS
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Randy Befumo (MF Templar), a Fool
Fool On the Hill

Dale Wettlaufer (MF Raleigh), another Fool
Heroes & Goats

Brian Bauer (MF Hoops), one more Fool
Editing

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