The Motley Fool, 04/25/97: The Evening News

HEROES

BELL ATLANTIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> gained $5 1/8 to $63 3/4 and NYNEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NYN)") else Response.Write("(NYSE: NYN)") end if %> rose $3 7/8 to $48 1/4 as the antitrust division of the Department of Justice stepped aside, leaving the final approval on the pending merger of the two Baby Bells up to the FCC. The merger will give the combined company almost one-quarter of the country's telephone lines and create a fearsome long-distance company covering lucrative markets such as New York and much of the tri-state area, Boston, Philadelphia, and Washington D.C. With the recent integration of PacBell into SBC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %>, there will now be only five Baby Bells left. Of those, AMERITECH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIT)") else Response.Write("(NYSE: AIT)") end if %> gained $2 to $58 5/8, BELLSOUTH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLS)") else Response.Write("(NYSE: BLS)") end if %> moved up $1 1/2 to $42 3/4, and US WEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USW)") else Response.Write("(NYSE: USW)") end if %> gained $1 7/8 to $33 1/4.

Shipping company CNF TRANSPORTATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNF)") else Response.Write("(NYSE: CNF)") end if %> moved up $1 3/4 to $30 3/4 after its Emery airfreight business was awarded a $1.7 billion, five year contract with the U.S. Postal Service. In contrast to airfreight company EAGLE USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EUSA)") else Response.Write("(Nasdaq: EUSA)") end if %>, which blew up earlier this week on reporting earnings a penny per share light of expectations, CNF hit a new 52-week high today on the news. Lately, the company has been priced below its peers. According to Deloitte & Touche's PeerScape, in March CNF was priced at 3.7 times EBITDA (earnings before interest, taxes, depreciation, and amortization), while FEDERAL EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %> was priced at 4.1 times EBITDA. In land transportation companies, LANDSTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LSTR)") else Response.Write("(Nasdaq: LSTR)") end if %> has been priced a little higher, at 3.9 times EBITDA, while J.B. HUNT TRANSPORTATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBHT)") else Response.Write("(Nasdaq: JBHT)") end if %> has languished at 2.9 times EBITDA.

QUICK TAKES: BUSINESS OBJECTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOBJY)") else Response.Write("(Nasdaq: BOBJY)") end if %> boomed ahead $2 1/8 to $9 1/2 after the database software company reported Q1 revenues of $23.4 million, up 24% year-over-year, and EPS of $0.06, beating estimates of $0.05... Young women's retailer WET SEAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WTSLA)") else Response.Write("(Nasdaq: WTSLA)") end if %> gained $3 3/4 to $22 7/8 after pre-announcing Q1 EPS of $0.23, much higher than estimates of $0.12, on better-than-expected same-store sales increases... Data storage systems company SAND TECHNOLOGY SYSTEMS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNDCF)") else Response.Write("(Nasdaq: SNDCF)") end if %> rose $1 to $7 1/4 after releasing beta test code for its "Nucleus parallel server option"... ADAC LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADAC)") else Response.Write("(Nasdaq: ADAC)") end if %> rose $2 1/2 to $19 1/2 after announcing favorable results in a multi-center test of its product meant to diagnose coronary artery disease... SEQUANA THERAPEUTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SQNA)") else Response.Write("(Nasdaq: SQNA)") end if %> fell $1 3/4 to $14 on reporting a larger-than-expected first quarter loss of $0.57 per share... Electronics contract manufacturer DII GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIIG)") else Response.Write("(Nasdaq: DIIG)") end if %> was boosted $2 1/8 to $29 3/8 on an Alex. Brown rating upgrade to "strong buy" from "buy"... BBN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBN)") else Response.Write("(NYSE: BBN)") end if %> gained $1 1/2 to $20 1/8 after the network integrator, software developer, and all around Wired editor's dream was rumored to be "in play."

GOATS

USA DETERGENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USAD)") else Response.Write("(Nasdaq: USAD)") end if %> was hosed for a $6 1/8 loss to $12 1/4 after the household products company announced yesterday that it didn't know if it would be profitable in its first quarter. So far, 1997 has been an annus horriblus for the company, which reached a high of $45 1/4 in mid-January. Since that point, it's been all downhill, as the company reported a slew of production problems and a 42% decline in Q4 EPS -- to $0.07. A month after that, the company's president resigned. Now the company isn't able to forecast its results for the quarter, much to the chagrin of analysts who had forecasted EPS of $0.16, even though last quarter one analyst commented that the company had such a loose hold on operations that it didn't even know where shipments were going.

AMERICAN POWER CONVERSION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APCC)") else Response.Write("(Nasdaq: APCC)") end if %> fell $2 7/8 to $15 3/4 after the uninterruptible power supply company reported Q1 EPS of $0.22, in line with estimates. Even though the company has been warning for some time that its gross margin would fall below 40%, it still hasn't happened. Analysts may have been disappointed with revenue growth, as 21% comes pretty close to the growth rate in PCs. Investors have become more accustomed to a growth rate surpassing the natural growth rate of the market, as PC and network equipment buyers have become more aware of the benefits of having power surge and outage protection. In contrast, sales grew 48% last quarter and 37% for the full year in 1996. As of today, the company is selling for about 15 times earnings with a 20% operating margin.

QUICK CUTS: Computer services company ELECTRONIC DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EDS)") else Response.Write("(NYSE: EDS)") end if %> plunged $9 1/2 to $32 1/2 after announcing a 11% decline in Q1 EPS to $0.40 on revenues of $3.6 billion, up 6.7% year-over-year... COMPUTER SCIENCES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSC)") else Response.Write("(NYSE: CSC)") end if %> fell $4 3/4 to $60 in reaction to the Electronic Data Systems earnings news... Application development software company FORTE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRTE)") else Response.Write("(Nasdaq: FRTE)") end if %> dropped $8 5/16 to $8 5/16 after reporting Q4 EPS of $0.14, which beat estimates, but the company was cut to "neutral" from "outperform" by Morgan Stanley... MAZEL STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAZL)") else Response.Write("(Nasdaq: MAZL)") end if %> nose-dived $6 5/8 to $12 5/8 before being halted as investors feared that a conference call planned by the retailer for after the close of trading was meant to announce an earnings warning... NORTHLAND CRANBERRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBRYA)") else Response.Write("(Nasdaq: CBRYA)") end if %> was squashed $2 7/8 to $11 9/16 after the berry grower said talks to acquire a juice bottler had broken off abruptly and that 1997 earnings will be lower than expected due to planning made in expectation of a successful acquisition... Carpet Max franchisor MAXIM GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAXM)") else Response.Write("(Nasdaq: MAXM)") end if %> slipped $2 to $9 after it said Q1 earnings will come in $0.03 to $0.04 lower than analysts' expectations of $0.22 per share... ZORAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZRAN)") else Response.Write("(Nasdaq: ZRAN)") end if %> fell $2 5/8 to $13 1/4 after the digital video chip company reported Q1 EPS of $0.06, which beat estimates but was flat year-over-year... DURA PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DURA)") else Response.Write("(Nasdaq: DURA)") end if %> dropped another $4 1/2 to $25 after the Wall Street Journal's "Intrinsic Value" column said the company would have reported losses in certain years had it expensed its R&D... Pharmaceutical company SANGSTAT MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANG)") else Response.Write("(Nasdaq: SANG)") end if %> was bled for a $2 5/8 loss to $13 3/4 after the company told analysts that operating costs will be increasing and that roll-outs for two products will be slightly delayed... STORAGE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STK)") else Response.Write("(NYSE: STK)") end if %> fell $4 3/4 to $34 after the storage systems company reported Q1 EPS of $0.64, up 33% year-over-year and above estimates of $0.62... Hotel supply biz GUEST SUPPLY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GSY)") else Response.Write("(NYSE: GSY)") end if %> was off $2 5/8 to $11 1/8 after reporting a Q2 EPS of $0.04 (before a charge), missing estimates of $0.08... RJR NABISCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> lost $2 3/4 to $28 7/8 and PHILIP MORRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> fell $2 1/8 to $39 1/2 after a District Court judge ruled that the FDA has authority to regulate cigarettes as medical devices, but that it doesn't have province over regulating advertising of the products...Field programmable gate array semiconductor company XILINX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XLNX)") else Response.Write("(Nasdaq: XLNX)") end if %> fell $5 1/4 to $46 after reporting Q4 EPS of $0.38, beating estimates of $0.36, on revenues of $152 million...Direct PC seller GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GATE)") else Response.Write("(Nasdaq: GATE)") end if %> lost $4 1/2 to $53 7/8 after reporting Q1 EPS of $0.86, right at estimates... GUARANTEE LIFE COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GUAR)") else Response.Write("(Nasdaq: GUAR)") end if %> fell $2 to $18 1/4 after the group life and health insurance company reported Q1 EPS from continuing operations of $0.31 (excluding a gain), missing estimates of $0.38.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

More Toxic Credit Quality Runoff

Could today's $5 1/8 slump to $9 5/8 in shares of CREDIT ACCEPTANCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CACC)") else Response.Write("(Nasdaq: CACC)") end if %> been avoided? The second-hand automobile lender tumbled after reporting first quarter earnings growth of 30%, an okay number except for the fact that the company increased its provision for credit losses on its loans by a even steeper 158.7%. It was also forced to charge-off $46.3 million worth of loans in the quarter, compared to $22.134 million a year ago. Deteriorating credit quality, mounting reserves, and increasing charge-offs are not things that make investors sleep well at night, especially at a time when the second-hand auto loan industry is replete with bankruptcies and near-bankruptcies.

How could Credit Acceptance Corp. better manage its loans in order to avoid all of these nasty spills? Besides tightening its loan quality, screening for loan applicants could potentially be improved. The application of advanced mathematics to develop statistically derived, rule-based analytical tools to assess credit risk has expanded dramatically in the past few years, and FAIR, ISAAC & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FIC)") else Response.Write("(NYSE: FIC)") end if %> has been on the cutting edge of this movement. Fair, Isaac sells software scoring tools and consulting services to credit bureaus and credit card processing agencies throughout the country. Although it has not yet stepped into the second-hand loan industry, no doubt the company is looking at developing tools to evaluate all kinds of credit risks as the next big growth frontier.

Unfortunately for Fair, Isaac, it did not fare much better than Credit Acceptance Corp. today. The company tumbled $3 1/8 to $30 3/8 on its second quarter earnings report despite beating consensus estimates by a penny. The company was cut from a "strong buy" to a "buy" by one of its two original underwriters, Alex. Brown & Sons. Although no details were given, the company's decision to acquire Risk Management Technologies in a stock swap valued at $46 million might be a factor. As Risk Management Technologies recorded revenues of only $7.2 million in fiscal 1996, the selling price of 6.4 times sales is sure to dilute Fair, Isaac's earnings over the short-term. With only $390.4 million in stock currently outstanding, the deal increases shares outstanding by 11.8% while increasing trailing revenues by only 4.3%.

Although Fair, Isaac was once a full-blown momentum stock from 1994 to mid-1996, the company has seen stock price appreciation cool over the last few months. The company has dominant market share among U.S. based issuers of credit cards, but account growth in this market has slowed in recent months as penetration has increased. Fair, Isaac has continued to look for new markets for its proprietary algorithms, including insurance through its traditional organization and marketing via its DynaMark subsidiary. While Risk Management Technologies is a dilutive acquisition, it opens up the entire market of enterprise-wide risk management and performance measurement products. Although earnings per share may take a hit in the near-term, long-term it appears that the acquisition is vital to expanding Fair, Isaac's market.

Current consensus earnings estimates call for Fair, Isaac to make $1.61 per share this year and $2.00 per share next year. Assuming that Risk Management Technologies has similar margins, it would appear that Fair, Isaac will do somewhere around $1.45 to $1.50 per share this fiscal year and near $1.85 per share next year (using the same growth assumptions for next year that existed pre-acquisition). At roughly 2.0 times sales with 18.6% operating margins, although Fair, Isaac trades at 20-some times earnings, the compounding effect of its earnings growth should net the high PE ratio out over a two to three year holding period. Investors interested in the segment might want to explore Fair, Isaac further, as the company remains a market leader in this very highly specialized industry.

CONFERENCE CALLS

US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>
Available after 7:00 PM EDT
(800) 696-1563 (code: 164010) -- replay

THE MONEY STORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MONE)") else Response.Write("(Nasdaq: MONE)") end if %>
(800) 964-4236

FORTE SOFTWARE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRTE)") else Response.Write("(Nasdaq: FRTE)") end if %>
(402) 220-1030

PC DOCS GROUP INT'L <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DOCSF)") else Response.Write("(Nasdaq: DOCSF)") end if %>
(416) 695-5800 (code 723627)

BUSINESS OBJECTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOBJY)") else Response.Write("(Nasdaq: BOBJY)") end if %>
(800) 633-8284 (code 2605415)

ARBOR SOFTWARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARSW)") else Response.Write("(Nasdaq: ARSW)") end if %>
(800) 633-8284 for until 4/26

SPYGLASS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPYG)") else Response.Write("(Nasdaq: SPYG)") end if %>
(800) 839-3306 (code 324274)

RAINFOREST CAFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %>
(402) 222-9939

HEWLETT PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
VERIFONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VF)") else Response.Write("(NYSE: VF)") end if %> Replay available from 4:15 PM EDT today through 8:00 PM EDT on 4/25, and from 10:00 AM EDT on 4/28 through 8:00 PM EDT on 4/30
(800) 633-8284 (reservation # 2699996)

UNITED COMPANIES FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UC)") else Response.Write("(NYSE: UC)") end if %>
(800) 475-6701 (code 336752)
(321) 365-3844 -- outside US

RTW INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RTWI)") else Response.Write("(Nasdaq: RTWI)") end if %>
replay available from 2:00 p.m. EDT through 4/28
(800) 475-6701 (code: 338849)
(320) 365-3844 (code: 338849) -- outside US

FORCENERGY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FGAS)") else Response.Write("(Nasdaq: FGAS)") end if %>
(800) 475-6701 (code: 338955) -- replay avail. through 4/29
(320) 365-3844 (code: 338955) -- replay (outside US)

MATTSON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTSN)") else Response.Write("(Nasdaq: MTSN)") end if %>
(402) 220-6969 -- replay available through 5/6

GENZYME TISSUE REPAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZL)") else Response.Write("(Nasdaq: GENZL)") end if %>
(402) 220-5189 (confirmation # 664581) -- replay through 4/30

THIS WEEK'S CONFERENCE CALL SYNOPSES

TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> Q1 Conference Call
MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Q3 Conference Call

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Randy Befumo (TMF Templr), a Fool
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Dale Wettlaufer (TMF Ralegh), another Fool
Ups & Downs

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