HEROES
COMPUSERVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSRV)") else Response.Write("(Nasdaq: CSRV)") end if %> gained $1 5/16 to $12 1/16 as The Wall
Street Journal reported that AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> bid "roughly
$1 billion" for the company last week. If AOL does want to get its hands
on CompuServe's subscriber base, the price per subscriber at the whispered
price would be about $330 (not including members of licensee NiftyServe),
substantially less than the current per-subscriber value on AOL of over $800.
Backing out intangible assets from CompuServe's latest balance sheet, such
an acquisition would be priced at 1.32 times assets and 1.64 times tangible
book value. AOL is trading at more than 10 times tangible assets and more
than 100 times tangible book value. If AOL can generate a 5% return on tangible
equity with those subscribers, then it will have paid about 33 times earnings.
If it can generate that return on its own tangible book value, investors
are paying 200 times earnings for AOL.
ROTECH MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROTC)") else Response.Write("(Nasdaq: ROTC)") end if %> moved up $1 1/8 to $20 after the home
health care and primary care company agreed to merge with specialty healthcare
company INTEGRATED HEALTH SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IHS)") else Response.Write("(NYSE: IHS)") end if %> in a stock swap valuing
each share of Rotech at 0.5806 shares of Integrated Health, the equivalent
of $22.61 based on Thursday's closing price. Integrated Health lost $3 1/4
to $35 11/16 on the news. APRIA HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHG)") else Response.Write("(NYSE: AHG)") end if %>, which will
face the combined IHS-RoTech as a major competitor, failed to move on the
news, having recently announced that it is looking at strategic alternatives
with the help of its investment bankers.
QUICK TAKES: YAHOO! INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> jumped $4 1/4 to $37 3/4 on
announcing a marketing agreement with Internet bookseller AMAZON.COM
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>, which itself gained $1 1/16 to $24...
Industrial automation software company
DATASTREAM SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSTM)") else Response.Write("(Nasdaq: DSTM)") end if %> added $2 1/8 to $18 7/8 on initiation
of coverage from Interstate /Johnson Lane with a "buy" rating... MITCHAM
INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIND)") else Response.Write("(Nasdaq: MIND)") end if %> gained $1 3/8 to $14 3/8 after the seismic
equipment leasing company was featured in Investor's Business Daily's
"New America" section... California thrift and multi-regional mortgage lender
LIFE FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LFCO)") else Response.Write("(Nasdaq: LFCO)") end if %> added $2 1/8 to $16 5/8 after
announcing an over-allotment sale of stock (what is known as a greenshoe)
following its IPO last week. This sale generated $4.8 million in gross
proceeds... Telecom billing software
company LHS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LHSG)") else Response.Write("(Nasdaq: LHSG)") end if %> gained $5 5/8 to $52 1/8 on no news...
SYBASE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYBS)") else Response.Write("(Nasdaq: SYBS)") end if %> moved up $1 3/8 to $13 7/8 after introducing
its PowerBuilder 6.0 development tool... SANGSTAT MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANG)") else Response.Write("(Nasdaq: SANG)") end if %> moved $2 3/8 higher to $25 7/8 after announcing that its Abbreviated
Antibiotic Drug Application "for the manufacture of bulk cyclosporine drug
substance" has been approved by the FDA...Airline fastener manufacturer
FAIRCHILD CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FA)") else Response.Write("(NYSE: FA)") end if %> jumped $1 3/4 to $19 after Banker's Trust
raised its 1998 estimates to $1.80 EPS from $1.40 EPS, a 28.6% increase.
MORE TAKES: ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> jumped $2 1/16
to $38 on anticipation of its second quarter earnings, set to be announced
tomorrow. MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> will also report earnings tomorrow,
with COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> reporting Thursday... Mexican shares are moving
in the wake of last night's elections, as TELEFONOS DE MEXICO SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMX)") else Response.Write("(NYSE: TMX)") end if %> added $2 1/8 to $51 3/4, GRUPO INDUSTRIAL DURANGO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GID)") else Response.Write("(NYSE: GID)") end if %>
gained $1 1/4 to $16 5/8, and retailer GRUPO ELEKTRA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EKT)") else Response.Write("(NYSE: EKT)") end if %> added
$1 5/16 to $23 7/8... Degradable woven and non-woven fabric developer
ISOLYSER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OREX)") else Response.Write("(NYSE: OREX)") end if %> jumped $1 5/16 to $4 9/16 after the company
announced it would report sales of $42.4 million in its second quarter, the
highest ever the company's history... Telco and electrical services company
DYCOM INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DY)") else Response.Write("(NYSE: DY)") end if %> rose $2 to $17 on no news... Breakfast
cereal maker and ski resort operator RALCORP HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAH)") else Response.Write("(NYSE: RAH)") end if %>
moved up $1 3/8 to $17 1/2 after GENERAL MILLS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GIS)") else Response.Write("(NYSE: GIS)") end if %> last week
said it's raising prices 2.6%... TEMPLETON RUSSIA FUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRF)") else Response.Write("(NYSE: TRF)") end if %>,
one of the few closed-end mutual funds to outperform and probably one of
the best-performing securities on the NYSE in the last year, gained another
$3 3/16 to $52 3/8 today on no news... HALIFAX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HX)") else Response.Write("(AMEX: HX)") end if %> rose
$1 1/16 to $9 13/16 after the computer service company and 10 other firms
announced an Army contract worth $500 million to $700 million over the next
decade.
GOATS
News that Australia's central bank is
selling
the majority of its gold reserves sent shares of gold mining companies
lower today. Bellwether BARRICK GOLD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABX)") else Response.Write("(NYSE: ABX)") end if %>, which has built
much of its shareholder value in an environment of falling gold prices, lost
$1 11/16 to $20 1/4. South African mine WESTERN DEEP LEVELS LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WDEPY)") else Response.Write("(Nasdaq: WDEPY)") end if %> was crunched for a $3 3/8 loss to $20 3/4; NEWMONT GOLD CO.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NGC)") else Response.Write("(NYSE: NGC)") end if %> fell $2 1/2 to $37; and PLACER DOME <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDG)") else Response.Write("(NYSE: PDG)") end if %> plunged
$2 1/4 to $14. Other gold mining losers: GOLDEN STAR RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GSR)") else Response.Write("(AMEX: GSR)") end if %> dropped $1 1/4 to $6 5/16; GOLDCORP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GG.A)") else Response.Write("(NYSE: GG.A)") end if %> fell $15/16
to $6 1/4; and CAMBIOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CBJ)") else Response.Write("(AMEX: CBJ)") end if %> shed $1 3/8 to $10 5/8.
WISCONSIN CENTRAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCLX)") else Response.Write("(Nasdaq: WCLX)") end if %> lost another $1 7/8 to $36 1/2 on
the heels of a Thursday downgrade by Donaldson, Lufkin & Jenrette to
"market perform" from "buy." In the case of a rating change to "market perform,"
the analyst usually reasons that the shares have hit a target price and are
no longer inefficiently priced by the market, i.e., the shares are not priced
at a level offering significant share appreciation potential. Wisconsin Central
is one of the largest regional railroads and has extensive foreign investments
from which Value Line estimates it will generate about half of First
Call's 1997 mean earnings estimate of $1.76. Here is how the company is priced
compared with some others in the industry:
Multiple on 1998 Estimates
WCLX 17.1
NSC 15.6
GNWR 13.7
BNI 12.4
QUICK CUTS: AMERICAN EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> trickled down $4 5/8 to $78 3/8 as CITICORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> merger rumors subsided for a moment... Oil and gas exploration/production company HUGOTON ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HUGO)") else Response.Write("(Nasdaq: HUGO)") end if %> fell $1 3/4 to $12 1/8 on announcing that BELCO OIL & GAS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOG)") else Response.Write("(NYSE: BOG)") end if %> has withdrawn its offer to acquire the company for $15 per share in cash and stock.... JONES MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JMED)") else Response.Write("(Nasdaq: JMED)") end if %> declined $15 1/2 to $27 7/8 after the pharmaceutical company and beloved ward of momentum players pre-announced Q2 EPS of $0.20, below estimates of $0.28... Software reseller SOFTWARE SPECTRUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSPE)") else Response.Write("(Nasdaq: SSPE)") end if %> reported Q4 sales of $201 million and EPS of $0.02, below estimates of $0.21, sending that stock down $2 5/16 to $10 1/2... Ace Auto Parts company PARTS SOURCE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACEP)") else Response.Write("(Nasdaq: ACEP)") end if %> lost another $1 1/4 to $7 as investors worry that the weather isn't cold enough or hot enough, depending on whose excuses one believes, to generate the right levels of earnings... BURLINGTON COAT FACTORY WAREHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCF)") else Response.Write("(NYSE: BCF)") end if %> fell $1 11/16 to $17 1/2 on reporting a 1% decline in fourth quarter same-store sales... Shoes and apparel company WOLVERINE WORLD WIDE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WWW)") else Response.Write("(NYSE: WWW)") end if %> slipped $2 1/2 to $26 5/8 after reporting Q2 EPS of $0.17, beating estimates of $0.15... Credit card issuers took the brunt of a slight decline in financial companies today, with CAPITAL ONE FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> falling $2 5/16 to $38 1/16 and ADVANTA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADVNA)") else Response.Write("(Nasdaq: ADVNA)") end if %> losing $1 3/4 to $34 1/4... CAIRN ENERGY USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CEUS)") else Response.Write("(Nasdaq: CEUS)") end if %> lost $1 5/8 to $11 13/16 after agreeing to merge with MERIDIAN RESOURCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMR)") else Response.Write("(NYSE: TMR)") end if %> in a stock-swap deal valuing Cairn at $13.30 per share, below its prior closing price.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
ChiRex Welcomes Glaxo's Guarantee
Investors struck with an unsettling sense of deja vu after
CHIREX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRX)") else Response.Write("(Nasdaq: CHRX)") end if %> announced it was buying a production facility
from London-based GLAXO-WELLCOME <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %> should not worry that
they are losing their minds. Chirex shares rose $2 7/8 to $14 1/2 after the
company signed a letter of intent to acquire Glaxo-Wellcome's cGMP pharmaceutical
production facility at Annan, Scotland, complete with a guarantee of at least
$250 million in business for ChiRex over the next five years. The news recalls
the February 5th deal between CATALYTICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTAL)") else Response.Write("(Nasdaq: CTAL)") end if %> and Glaxo-Wellcome
that allowed Catalytica to purchase a separate factory with a similar supply
guarantee.
On February 5th, Glaxo-Wellcome agreed to sell a Greenville, North Carolina
production facility to
Catalytica. The agreement
gave Catalytica the 1.8 million square-foot production facility, 600 acres
of land and a manufacturing supply contract worth up to $800 million in revenues
over five years for an undisclosed amount. As Catalytica only did $16 million
in revenues in fiscal 1996, the prospect of up to $800 million in business
with companies like Glaxo-Wellcome, Pfizer, Merck, Pharmacia & Upjohn,
and Novartis was quite enticing.
At first glance, the
ChiRex
deal appears to be extraordinarily similar to the Catalytica arrangement,
which was completed on June 30th. ChiRex is a contract manufacturer of components
for major pharmaceutical companies, and already does business with Elf
Aquitaine's Sanofi division, Pharmacia &
Upjohn, and Pfizer. The company is restricted from releasing most customer
information due to extensive secrecy agreements that govern many of its
transactions. In 1996 the company received almost 50% of its revenues from
the eight products it makes for Elf Aquitaine's Sanofi unit. The company's
expertise in bulk additives, chemical intermediates, and development products
in conjunction with its established relationships make it a logical choice
for Glaxo-Wellcome to partner with in Glaxo's quest to get all intermediate
production done by outside parties.
The benefits of today's deal for ChiRex are easy to see. First, the company
gets all of the buildings, land and equipment at the 154-acre Annan, Scotland
property, including three main production buildings, for 40 million pounds
(approximately $66 million), plus certain working capital. The company will
invest an additional 30 million pounds ($48 million) to accommodate Glaxo's
newly contracted products and in return will get at least $250 million in
revenues from Glaxo over the next five years, an amount that could rise to
as much as $450 million. The company did $89.8 million in revenues in fiscal
1996, implying that even the low end of the contract is significant. ChiRex
gets production capacity and a significant, guaranteed stream of revenue
in return for expanding its core business.
Despite the positive news over the last year, trading has been rather choppy
for ChiRex. ChiRex first showed up on the Fool News radar screen in late
August of 1996 when a "buy" rating
from Legg Mason analyst Eugene Rothman pushed the shares up almost $2 to
$11 in two short days. The company continued to climb after reporting
fourth quarter earnings 18% ahead of
consensus estimates in late February, and finally climbed again to the $11
range after partner SEPRACOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEPR)") else Response.Write("(Nasdaq: SEPR)") end if %> assured investors
its sale of ChiRex stock would not affect
the relationship between the two companies. With today's news, the stock
hit a 52-week high of $14 3/4 before closing at $14 1/2.
ChiRex may suffer from the perception it is a commodity chemical manufacturer
for the drug industry in spite of the intense secrecy required for each of
the deals to be consummated. Forward earnings estimates have been trending
down over the past three months according to First Call, but still remain
at $1.05 per share with an estimated five-year growth rate of 42%. With the
company currently priced at $14 and change, the potential upside from the
Glaxo deal may not be completely priced into the shares. The company already
tripled sales in its March quarter due to existing deals, becoming cash flow
positive and generating $0.11 per share. Even if the new business is at 2.5%
margins instead of the 7.6% ChiRex generated last quarter, and revenues from
the deal only come in at $25 million given the partial year, this will add
$0.08 per share to 1997's $0.57 EPS estimates, or 14%. Investors might want
to take a look at the company.
CONFERENCE CALLS
HELEN OF TROY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HELE)") else Response.Write("(Nasdaq: HELE)") end if %>
(800) 275-2442 -- replay for 24 hours
CANANDAIGUA WINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WINEA)") else Response.Write("(Nasdaq: WINEA)") end if %>
(800) 839-1153 (password: 1234) -- through 12:30 p.m. EDT on 7/10
MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
(402) 220-4831 -- replay available through 7/10
WE
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Randy Befumo (TMF Templr), a Fool
Fool Plate Special
Dale Wettlaufer (TMF Ralegh), another
Fool
Ups & Downs
Brian Bauer (TMF Hoops), and yet
another Fool
Editing