The Motley Fool, 05/13/97: The Evening News

HEROES

WHOLE FOODS MARKET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %> gained $2 to $28 1/2 after the natural foods supermarket, which operates Whole Foods, Fresh Fields, Mrs. Gooch's and Bread & Circus, reported Q2 earnings per share (EPS) of $0.28 on quarterly revenues just a bean sprout's breadth under the quarter-billion dollar mark. Average weekly sales increased 8.1% sequentially to $20.1 million. About 0.5 percentage points of operating margin are going into store opening expenses as the company expands its outlets and expenses those costs rather than putting them on the balance sheet as assets. Whole Foods beat estimates because of a surprising increase in gross margin, from just under 7% last quarter to 8% this quarter. The company said coordinated national buying and less shrinkage in fresh produce due to increased foot traffic were major factors in its improving performance.

REGENERON PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REGN)") else Response.Write("(Nasdaq: REGN)") end if %> rose $4 to $11 7/8 after signing a research agreement with PROCTER & GAMBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> to discover and develop new drugs. Procter & Gamble will have access to Regeneron's in-process research involving pharmaceuticals for cardiovascular, bone, muscle, arthritis and other disease areas. Regeneron will receive a $135 million over five years -- $60 million from a purchase of Regeneron's common stock and $75 million in research funds.

QUICK TAKES: Adult incontinence and feminine products company INBRAND CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INBR)") else Response.Write("(Nasdaq: INBR)") end if %> gained $10 7/8 to $26 7/8 after agreeing to merge with conglomerate TYCO INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TYC)") else Response.Write("(NYSE: TYC)") end if %> in a stock swap valuing each Inbrand share at 0.43 shares of Tyco... KENSEY NASH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KNSY)") else Response.Write("(Nasdaq: KNSY)") end if %> moved $1 5/8 higher to $11 1/2 after the FDA approved the use of the company's Angio-Seal closure device for a wider variety of surgical procedures... FRED MEYER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMY)") else Response.Write("(NYSE: FMY)") end if %> gained $2 3/4 to $45 3/8 and SMITH'S FOOD & DRUG CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFD)") else Response.Write("(NYSE: SFD)") end if %> plowed ahead $4 to $47 3/4 a day after the two agreed to merge... Wire and cable distributor ESSEX INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SXC)") else Response.Write("(NYSE: SXC)") end if %> moved up $1 1/4 to $19 3/4 after Goldman Sachs initiated coverage of the company by adding the issue to its "recommended list"... ZERO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZRO)") else Response.Write("(NYSE: ZRO)") end if %> added $1 1/8 to $20 5/8 after the electronic cabinetry maker said it will report 1997 EPS of $1.28, in line with the mean analysts' estimate reported by First Call... Catalog clothing retailer LANDS' END <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LE)") else Response.Write("(NYSE: LE)") end if %> rose $1 1/2 to $27 3/8 after posting Q1 operating EPS of $0.20, beating estimates of $0.17 on revenues of $245 million... LEARONAL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LRI)") else Response.Write("(NYSE: LRI)") end if %> rose $1 3/8 to $25 3/4 after the specialty chemicals manufacturer reported 1997 EPS of $1.86, 7% above year-ago levels, and said it will boost its dividend by 6% and buy back up to 500,000 shares... DEERE & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DE)") else Response.Write("(NYSE: DE)") end if %> leapt $2 1/2 to $51 1/2 on reporting Q2 EPS of $1.25, up 20% over last year and 8.7% above estimates... Oil and gas explorer SABA PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: SAB)") else Response.Write("(AMEX: SAB)") end if %> climbed another $2 3/8 to $16 after yesterday reporting that it sees fiscal year 1997 EPS above $1.00 and forecasting that it will need no capital infusions for its exploration program... GST TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GST)") else Response.Write("(AMEX: GST)") end if %> gained $1 3/16 to $8 after Bear Stearns started coverage of the company with an "attractive" rating.

GOATS

QUALITY DINING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDIN)") else Response.Write("(Nasdaq: QDIN)") end if %> fell $1 1/2 to $6 9/16 after Goldman Sachs cut its rating on the company to "market perform" from "market outperform." That rating change came in reaction to the company's announcement last night that it is in talks with a number of parties to sell its Bruegger's bagel operation at a price presumably far below what Quality Dining paid last summer when it issued over five million common shares as well as a bunch of preferred shares. In less than a year, Quality Dining ramped up its 53 retail Brugger's outlets to 114 outlets while increasing franchisees by 32%. During that time, operating income has been flat. The market discounted all of this, though, as the price of Quality Dining's stock never went more than 1/4 point higher than the price on the day the deal was announced.

INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> gave up $6 3/4 to $152 3/8 after DIGITAL EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> announced that it is launching a patent infringement lawsuit against Intel, charging that Intel's Pentium line of CPUs violates 10 different DEC patents and that Intel is liable for "huge" damages. Chairman Bob Palmer explained in a conference call today that the release of the Pentium II was the watershed factor in motivating a DEC inquiry. Palmer referred to a Wall Street Journal article published last August that claimed, "For decades, unbeknownst to most people outside the chip business, [Intel] has done almost no original microprocessor research beyond what it takes to get its products out." CMP's TechWeb carries an in-depth synopsis of the Digital Equipment conference call held this morning. Digital Equipment shares finished the day up $2 1/4 at $35 3/8.

Wireless communications infrastructure equipment company ANDREW CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANDW)") else Response.Write("(NYSE: ANDW)") end if %> tumbled $5 3/4 to $23 5/8 after Merrill Lynch and Wessels Arnold both downgraded the company's shares, reasoning that the company's near-term growth prospects have slowed. For that same reason, the stock crashed for a $12 1/8 loss almost a month ago when analysts weren't happy with the company's 14% revenue growth. Among the array of businesses the company is involved in, those cited by the analysts only account for 30% of Andrew's overall business, the company told Dow Jones today. With SPRINT's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> Spectrum wireless service still facing a vigorous ramp-up and other telecom companies heading into the construction season, some would argue that these analysts are downgrading at the wrong time of the year.

QUICK CUTS: Wide area network access systems company TELCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TELC)") else Response.Write("(Nasdaq: TELC)") end if %> declined $1 21/32 to $8 27/32 after saying that it will report a loss of $0.20 to $0.40 per share on sequentially flat revenues of about $27 million, earning a rating downgrade from Merrill Lynch to "near-term neutral" from "near-term accumulate"... COHR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRI)") else Response.Write("(Nasdaq: CHRI)") end if %> lost $3 7/16 to $18 3/4 after the medical equipment leasing and outsourcing company told analysts that Q4 revenues will come in $1 million lower than expected... Interactive training company FIREARMS TRAINING SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FATS)") else Response.Write("(Nasdaq: FATS)") end if %> was shot down $1 7/8 to $11 3/8 after reporting Q4 EPS of $0.16, beating estimates of $0.14, on revenues of $26 million... 360 COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XO)") else Response.Write("(NYSE: XO)") end if %> dropped $1 1/8 to $15 3/4 after Lehman Brothers cut its rating on the wireless telecom company to "hold" from "outperform"... Disk drive industry participants had a lousy showing today as SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> fell $2 1/4 to $50 1/4, WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> shed $3 3/8 to $67 5/8, and APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %> was ground down $2 to $29 3/8. After the bell, DMG Technology Group started coverage of Seagate with an "attractive" rating... Illinois utility companies dropped today over uncertainty regarding rate proposals and the passing of an industry deadline for a competition proposal draft. ILLINOVA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ILN)") else Response.Write("(NYSE: ILN)") end if %> lost $1 1/4 to $21 7/8 and UNICOM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCM)") else Response.Write("(NYSE: UCM)") end if %> was dimmed $1 to $22.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Micron Leads Group Down

Personal computer maker and contract manufacturer MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> was zapped for $5 3/8 to $18 5/8 today on six times normal volume. Rumors that the Nampa, Idaho concern was about to make a "bearish forecast" apparently spooked investors. Although no specifics were available, Micron Electronics is about to enter the 30-day "quiet period" prior to reporting earnings the week of June 12th, around the time when most companies that are going to miss quarterly earnings estimates begin to let investors know. The company could not be reached for comment.

Still majority-owned by MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>, Micron Electronics is the third-largest publicly traded manufacturer and direct seller of personal computers. With $1.5 billion in revenues from its direct PC business over the past four quarters, the company is second only to $7.8 billion DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> and $5.3 billion GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GATE)") else Response.Write("(Nasdaq: GATE)") end if %>. Skittishness about Micron bled into these companies as well today, with Dell off $2 7/8 to $91 3/8 and Gateway falling $3 1/4 to $60 1/2 on normal volume. PC industry giant COMPAQ COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, a recent convert to the direct sales method of doing business, slid $2 1/2 to $93 1/2.

If Micron is not going to make its numbers, this will be the first near-term negative news for PC-related stocks since they hit their lows in mid-April amidst a flurry of broad-based selling in computer-related companies. Whether looking at Compaq, Dell, Gateway 2000 or Micron Electronics, all four companies have seen strong upward movements in their share prices over the past month. Although laggards initially, both Gateway 2000 and Micron were boosted by rumors that Compaq was considering acquiring one of these companies in an attempt to build its direct PC sales business as quickly as possible. However, merger talk got most advanced between Compaq and Gateway, and reports are that the discussions broke off after Gateway executives realized they would become second tier players in the Compaq management structure.

The advance in PC manufacturers over the past month has been driven by a number of positive news events. INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> kicked things off in mid-April with strong quarterly results showing that demand for central processing units (CPUs) remained strong in the quarter, taken by many analysts as a leading indicator that inventories in the sales "channel" were reasonable. Compaq's stronger than expected earnings report on April 16th added to the positive momentum with the company openly embracing the direct sales approach. Inventory turns improved dramatically as the company managed to retool its corporate distribution infrastructure much faster than analyst's had anticipated. Chief Financial Officer (CFO) Earl Mason signed off on earnings of $1.37 per share for the upcoming quarter and Compaq said it continues to study its acquisitions options.

The prospect of Compaq as an acquirer sparked a rally in shares of Gateway and Micron Electronics, and the affirmation of the direct sales model by its biggest critic proved to be a benefit to Dell Computer. Compaq and Dell both also stressed that they saw PC growth in the 18% to 20% range in calendar 1997, driven by improvements in technology and the increased horsepower required to run Microsoft's Office 97. Dataquest and International Data Corp. (IDC) both issued reports on April 28th confirming these optimistic estimates for PC sales growth. Gateway followed this by releasing earnings that showed strength in the consumer end of the market. With Dell's pending earnings release slated for next Tuesday, many are eagerly awaiting the Texas-based manufacturer's next estimate destroying performance.

Despite the recent gains, valuations for the group are not terribly out of whack, with the possible exception of Dell. Compaq trades at only 12.8 times next year's earnings estimate. The company has repurchased $300 million in long-term debt and has committed to buying back 25 million shares. The new CFO is employing Economic Value Added (EVA) analysis to the company in an attempt to increase the value delivered to shareholders, a plan that has helped the company finally recognize the benefits of the direct model. Gateway 2000 and Micron Electronics both trade at 11.9 times next year's estimates. These companies tend to trade at a discount because of the perception that consumers are much more fickle purchasers of PCs than are businesses, which favor Compaq and Dell.

Only Dell is outside of its historical range, trading at 17.9 consensus estimates and about 16 to 16.5 times what the company should actually make. Given the company's consistent ability to grow at 1.5 to 2 times the industry growth rate, even 17.9 times forward earnings could hardly be called unreasonable. As a group, all but Dell have below market PE multiples with two to three times the growth rate of the S&P 500 as a whole. The companies are generating cash, repurchasing shares, and aggressively controlling costs. Intel and Microsoft both are introducing significant new products, including the Pentium II chip and Office 97, which should help to maintain PC sales at or above the first quarter's 16% international rate. Investors who have not yet taken advantage of the market's consistent mispricing of companies in this industry over the past three years may want to consider accumulating shares if there is any prolonged weakness.

CONFERENCE CALLS

APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>
After 7:30 p.m. EDT
(800) 642-1687 (code: 353749) -- replay

INTERNATIONAL RECTIFIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IRF)") else Response.Write("(NYSE: IRF)") end if %>
(Re: Restructuring)
(800) 633-8284 (reservation # 2765732) -- replay

05/13/97 (Tuesday)
WHOLE FOODS MARKETS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %>
(800) 633-8284 (reservation # 2745722) -- replay available through 5/16

CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>
Replay available through 5/16
(800) 633-8284 (code: 2624093)

CITRIX SYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTXS)") else Response.Write("(Nasdaq: CTXS)") end if %>
To Discuss Agreement with Microsoft
(800) 475-6701 (code 342099)
(320) 365-3844 (passcode: 342099) -- replay for International callers (call collect)

METROWERKS CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTWKF)") else Response.Write("(Nasdaq: MTWKF)") end if %>
Replay available after 4:00 p.m. EDT for 24 hours
(402) 280-9006 (passcode: 337945) -- replay

Standard & Poors
On sovereign credit risks in “dollarized” economies
(800) 925-0884

AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>
(800) 633-8284 (code 2604899)

INFORMIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFMX)") else Response.Write("(Nasdaq: IFMX)") end if %>
Available until 5/16
(800) 839-8790 -- replay

AT&T Capital
replay from 2 p.m. EDT until 5/15
(800) 475-6701 (code: 340581)
(320) 365-3844 (code: 340581) -- Outside the United States

DOLLAR GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DG)") else Response.Write("(NYSE: DG)") end if %>
(402) 220-1032 -- replay available after 1:00 p.m. EDT through 5/16 @ 6:00 PM EDT

GENZYME CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %>
(regarding contract with Cleveland Clinic to purchase Seprafilm)
(402) 220-6030 -- replay from 3:00 p.m. EDT through 5/20 @ 5:00 p.m. EDT

05/14/97 (Wednesday)
SMARTALK TELESERVICES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTK)") else Response.Write("(Nasdaq: SMTK)") end if %>
(800) 846-0416 -- replay available from 1:00 PM EDT for 48 hours

05/14/97 (Wednesday) EDGE PETROLEUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EPEX)") else Response.Write("(Nasdaq: EPEX)") end if %>
(402) 220-4831 -- replay available through 5/20

05/14/97 (Wednesday)
BELL & HOWELL COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BHW)") else Response.Write("(NYSE: BHW)") end if %>
Shareholder Meeting Live Webcast
9:00 a.m. EDT

THIS WEEK'S CONFERENCE CALL SYNOPSES

US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %> Q2 Conference Call
AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> Q3 Conference Call
ALLIED SIGNAL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALD)") else Response.Write("(NYSE: ALD)") end if %> Q1 Conference Call
HMT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %> Q4 Conference Call

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