The Motley Fool, 05/21/97: The Evening News

HEROES

Semiconductor fabrication facility equipment company ASYST TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASYT)") else Response.Write("(Nasdaq: ASYT)") end if %> jumped $3 3/4 to $28 7/8 after reporting Q4 revenues of $34.9 million and earnings per share (EPS) of $0.52, beating the Zacks mean estimate of $0.50. The maker of wafer cassettes, mini-environments for process tools made by companies such as Applied Materials, and software systems for tracking materials through the fab showed better gross margins and order growth. This quarter's $16 million order from Taiwan Semiconductor certainly is a help, as is the improving outlook for its OEM customers and the end-users in the semiconductor industry. Having discontinued operations at its automation unit, the company is ready to concentrate on its core products and its new software unit, and prepare for the transition to larger 300-millimeter systems, a secular move that plays to its capabilities.

KU ENERGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KU)") else Response.Write("(NYSE: KU)") end if %> powered up $4 1/8 to $34 after the Kentucky utility agreed to be merged into LG&E ENERGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LGE)") else Response.Write("(NYSE: LGE)") end if %> for 1.67 shares of LG&E for each KU share. The merger readies the companies for deregulation, as their combined operations lie at a key point in the Midwestern and Southern power grid, interconnecting with eight other utilities. If the company can become a low-cost provider among its neighbors, that location will be key in the coming price wars within the industry. Another kicker in the deal, which has added to the attractiveness of other companies being acquired or merging in the utility industry, is KU's heavy equipment leasing and investment subsidiary.

Direct PC manufacturer DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> ruled the Nasdaq today after last night reporting Q1 EPS of $1.08, beating the mean estimate of $0.94 like a Mike Tyson sparring partner. Highlights of the quarter included a 59% year-over-year increase in sales, three to four times the industry's growth rate of 15% to 20%. Server sales, which now account for only 6% of revenues, grew by a factor of 3.5 times year-over-year. On asset management, a key part of the way Dell's business is managed (partly because Chair Michael Dell owns 40% of the company and runs it like an investor and not a bureaucrat), the company turned inventory an incredible 30 times (annualized), reduced accounts receivable days sales outstanding to 34 days, and bought back 6.6 million shares in the quarter.

QUICK TAKES: Semiconductor wafer company IBIS TECHNOLOGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IBIS)") else Response.Write("(Nasdaq: IBIS)") end if %> gained $2 5/16 to $8 1/2 after announcing that Mitsubishi Electric Corp. of Japan is marketing a device based on the IBIS's SIMOX-type wafer... CLOSURE MEDICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLSR)") else Response.Write("(Nasdaq: CLSR)") end if %> jumped $3 1/4 to $21 3/4 after the maker of wound closure "super-glue" was profiled in the Wall Street Journal this morning... Cabling systems construction company AMERLINK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALNK)") else Response.Write("(Nasdaq: ALNK)") end if %> moved up $1 13/16 to $8 1/2 after reporting Q1 EPS of $0.15 on a 32% increase in revenues... Having come public last week at $16, telco billing and service software company LHS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LHSG)") else Response.Write("(Nasdaq: LHSG)") end if %> added another $3 3/8 to $23 5/8 today... TALBERT MEDICAL MANAGEMENT HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMMCV)") else Response.Write("(Nasdaq: TMMCV)") end if %> gained $5 3/16 to $40 15/16 in "when issued" trading as the medical practice management company was separated from its parent companies, including PACIFICARE HEALTH SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHSYA)") else Response.Write("(Nasdaq: PHSYA)") end if %>, in a rights offering... BEA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAS)") else Response.Write("(Nasdaq: BEAS)") end if %> rose $1 1/2 to $10 3/4 after announcing that it is collaborating with ORACLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> on Windows NT systems... INVISION TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INVN)") else Response.Write("(Nasdaq: INVN)") end if %> rose $1 7/8 to $14 after Prudential Securities initiated coverage of the bomb detection equipment company with a "buy" rating... Environmentally sensitive telecommunications infrastructure builder MASTEC INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTZ)") else Response.Write("(NYSE: MTZ)") end if %> gained $3 1/2 to $33 1/8 after announcing that it has acquired a 50% stake in Brazil's Inepar S.A. Industria e Construcoes for a capital contribution of $29.4 million... GRUPO TELEVISA SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TV)") else Response.Write("(NYSE: TV)") end if %> picked up $2 3/8 to $27 7/8 after the Mexican broadcaster announced a cost-cutting plan to save $90 million per year... Information systems provider NATIONAL DATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NDC)") else Response.Write("(NYSE: NDC)") end if %> gained $2 7/8 to $42 3/8 after McDonald & Co. started coverage of the company with an "aggressive buy" rating... SCI SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCI)") else Response.Write("(NYSE: SCI)") end if %> added $4 3/8 to $62 after Merrill Lynch reinstated coverage of the electronics components manufacturer with a "near-term accumulate" rating... CATALINA MARKETING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: POS)") else Response.Write("(NYSE: POS)") end if %> checked in for a $2 1/2 jump to $38 after the point-of-sale marketing systems company announced yesterday that it is nearing an agreement with British retailer Somerfield, which would give Catalina 45% market penetration in the United Kingdom... Though Dell Computer yesterday laid out some reasons why one would think these traditional PC companies are dinosaurs, COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> gained $5 3/4 to $102 3/4 and DIGITAL EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> rose $2 to $34 1/4 on Dell's coattails today... U.S. ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %> rose $4 5/8 to $72, merger partner 3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> came along for a $2 5/8 gain to $41 5/8, and NORTHERN TELECOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> gained $4 1/2 to $84 as U.S. Robotics and Nortel announced that they are collaborating on digital wireless data access solutions.

GOATS

HONDA MOTOR CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMC)") else Response.Write("(NYSE: HMC)") end if %> fell $6 1/4 to $58 after reporting Q4 EPS of $0.53 on revenues of $11.9 billion, up 15.9% from last year. Earnings for the year totaled $3.66 per share, short of estimates of $3.77 per share. Year-over-year, the weakness of the yen has helped pricing even though a good deal of the company's production costs for U.S.-sold cars are denominated in dollars. As the yen has fallen, the company can hold the line on pricing of American models and still buy more yen when profits are repatriated. The more yen its dollar profits will buy, the higher the company's yen-denominated profits go, and hence, the company's share price on the Tokyo stock exchange. So, even if profit margins are squeezed by not raising prices in dollar terms, a weakening yen helps the absolute amount of yen profits. Some analysts are worried that the recent strength in the yen will reverse this cycle.

Comments about disk drive pricing during the Dell conference call last night sent shares of disk drive companies and their suppliers down today. SEAGATE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> slid $2 3/8 to $43; WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> declined $4 1/4 to $59; QUANTUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> lost $3 13/16 to $37 9/16; READ-RITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %> fell $2 1/2 to $21 1/2; and HUTCHINSON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HTCH)") else Response.Write("(Nasdaq: HTCH)") end if %> fell $2 3/4 to $28 1/8, while Minnesota neighbor INNOVEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INVX)") else Response.Write("(Nasdaq: INVX)") end if %> lost $6 5/8 to $31 1/4. That disk drive industry investors key off the latest data point was well illustrated today, as Dell reiterated what was said about price competition in high-end drives during in the last round of drive industry conference calls. Price competition and negative inflation are regular factors affecting the drive business. It is interesting to note that neither Texas Instruments nor Micron Technology fell apart today even though DRAM price weakness was also talked about in Dell's conference call.

QUICK CUTS: NUKO INFORMATION SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NUKO)") else Response.Write("(Nasdaq: NUKO)") end if %> was flattened $1 15/16 to $4 1/4 after the data codec maker announced re-stated Q1 revenues of $2.2 million and a loss of $0.37 per share, down from the previously announced $6.1 million and a loss of $0.17 per share -- oops... Swedish demand chain software company INDUSTRI-MATEMATIK INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMIC)") else Response.Write("(Nasdaq: IMIC)") end if %> lost $1 5/8 to $10 7/8 after reporting Q4 revenues of $21.4 million and EPS of $0.14, beating estimates of $0.10... AMAZON.COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> fell below its $18 IPO price as it slipped $2 1/2 to $17 1/8 today... SMARTFLEX SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFLX)") else Response.Write("(Nasdaq: SFLX)") end if %> lost $1 11/16 to $12 1/4 as its customers in the disk drive industry were hurting today, or at least their share prices were... US AIRWAYS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %> descended $3 to $34 7/8 as it told Airbus Industrie that it won't begin to take deliveries of jets until it reaches a pay agreement with its pilots... Mining and paper making equipment company HARNISCHFEGER INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HPH)") else Response.Write("(NYSE: HPH)") end if %> lost $3 3/8 to $39 5/8 after reporting Q2 earnings and announcing that it may miss 1997 EPS estimates of $3.80 by up to $0.38 per share because of short-term factors in the mining industry.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Modern Day Conglomerates

TYCO INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TYC)") else Response.Write("(NYSE: TYC)") end if %> today announced its fourth major acquisition in two months, picking up industrial valve manufacturer KEYSTONE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KII)") else Response.Write("(NYSE: KII)") end if %> in a stock-for-stock deal. Tyco will exchange 0.54183 shares of its own stock for each share of Keystone, valuing each share of Keystone at around $33 1/2. The deal values the entire company at roughly $1.18 billion. Keystone poured out a $10 5/8 gain to $31 1/8 today on the news, while Tyco shares gave back $1 1/8 to $61 5/8.

Houston-based Keystone has suffered from erratic profit and revenue growth over the past few years. In fiscal 1995, net earnings fell to $0.56 per share from $0.94 per share in 1994. New management was installed to get the maker of flow control, safety, environment and power actuator systems back on track. Although management appeared to have turned the company around in fiscal 1996, earning $1.18 per share on 13.5% revenue growth, first quarter sales fell below year ago levels with profits virtually flat, below analyst expectations. Shares bottomed out in the $17 range but have seen strength in recent weeks.

Today's deal values Keystone at 1.77 times its $671.6 million in trailing sales and 28.2 times trailing earnings, a valuation that appears somewhat generous given the company's 10% operating margins and recent performance. Tyco views Keystone as another phase in its plan to focus on "high value, stable industrial markets'' where the company already has significant operations. Tyco's business is currently divided into four segments -- valves and flow control, disposable and specialty products, electrical and electronic-components, and fire alarm and safety products.

Management anticipates that it will simply plug Keystone into its existing valve and flow control lineup and believes that the deal will add $0.02 per share to this year's earnings. Although four acquisitions in two months may seem like quite a bit, Tyco has acquired a company to fit with each of its defined lines of business, opportunistically using its recently rising stock as currency. The other deals include the $5.8 billion purchase of ADT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADT)") else Response.Write("(NYSE: ADT)") end if %> for Tyco's alarm and safety products, the $320 million purchase of INBRAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INBR)") else Response.Write("(Nasdaq: INBR)") end if %> for the disposable and specialty products, and the $850 million purchase of AT&T's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> Submarine Systems unit for its electrical and electrical-components business.

Tyco International has been an amazing performer over the past three years, with its stock rising at a compound annual rate of 38.5% over the period. Although the aggregate size of the acquisitions is quite large due to the size of ADT, Tyco unbelievably acquired more separate companies in 1996 than it has so far in 1997. Tyco acquired six companies, including Professional Medical Products (specialty products), Earth Technology (safety), three units of valve maker Watts Industries (valves), a unit of Carlisle Plastics (specialty products), Thorn Security (safety), and ElectroStar (electronics). Lehman Brothers analyst Phua Young discounted the potential of the company choking on any of the acquisitions, raising his target price on Tyco from "at least $75" to $100 a share.

Including the pledged shares for acquisitions, Tyco will have a market capitalization of $17.6 billion when all of these deals close, more than double the $8 billion at the beginning of the fiscal year. The combined companies will have $8.8 billion in revenues, implying that at the current price the entire company is trading at approximately 2 times sales. Given that Tyco's operating margins are in the 10% range and profit margins around 6% and each of the units it is acquiring has lower margins, the company trades at least in excess of 33 times trailing earnings, although specifics are hard to figure. The company's five-year rate of EPS growth stands at 24.25%, including last year's 28.3% leap after making its six acquisitions.

Tyco's current consensus earnings estimates stand at $2.53 per share for this fiscal year and $3.15 per share for next year, although it is unclear how many of the acquisitions have been figured into these numbers. Should the 1998 estimate go higher as a result of these deals, the relatively high multiple to trailing earnings and revenues Tyco enjoys might soon evaporate once the experienced management begins cutting costs and integrating the acquisitions. Only time will tell for sure, but at this point it is clear that only investors who have done a substantial amount of homework on Tyco and its acquisitions should be purchasing shares now.

CONFERENCE CALLS

DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>
(800) 839-1826 -- replay available until 8:30 p.m. EDT on 5/21

HEWLETT PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(303) 446-5399 (reservation # 2554014) -- replay through 5/22

COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>(888) 243-0816 (code: 3276) -- replay available after 6:30 PM EDT for 48 hours

APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>
(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

HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
(402) 220-3005 -- replay after 12:00 noon until 5/23

DAYTON HUDSON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
(800) 633-8284 (reservation # 2703946) -- replay from 12:30-5:00 p.m. EDT

ROSS STORES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
(402) 220-1007 -- replay available from 5:00 p.m. EDT through 5/27 @ 8:00 p.m. EDT

05/22/97 (Thursday)
WIND RIVER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WIND)") else Response.Write("(Nasdaq: WIND)") end if %>
(800) 633-8284 (reservation # 2748792, code: 2589) -- replay
(303) 248-1201 (reservation # 2748792, code: 2589) -- replay (Intl. callers)

THIS WEEK'S CONFERENCE CALL SYNOPSES

HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> Q2 Call
STAPLES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLS)") else Response.Write("(Nasdaq: SPLS)") end if %> Q1 Call
HADCO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDCO)") else Response.Write("(Nasdaq: HDCO)") end if %> Q2 Call
PAPA JOHN'S INT'L <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PZZA)") else Response.Write("(Nasdaq: PZZA)") end if %> Q1 Call
APPLEBEE'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APPB)") else Response.Write("(Nasdaq: APPB)") end if %> Q1 Call
DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> Q1 Call
FAMILY GOLF CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FGCI)") else Response.Write("(Nasdaq: FGCI)") end if %> Q1 Call