HEROES
SCI SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCI)") else Response.Write("(NYSE: SCI)") end if %> moved up $5 3/4 to $71 after the electronics
contract manufacturer closed a deal with Swedish telecom equipment manufacturer
LM ERICSSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> under which SCI and SOLECTRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> will take over much of Ericsson's printed circuit board assembly
manufacturing. Solectron gained $2 3/16 to $74 3/16 on the day. This deal
was announced in March of this year and is a continuation of Ericsson's
rationalizing its production process, outsourcing low-margin production tasks
where it just doesn't have the same economies of scale as SCI and Solectron.
FLEXTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FLEXF)") else Response.Write("(Nasdaq: FLEXF)") end if %>, a contract manufacturer of flexible
circuitry, bought a Swedish production facility from Ericsson last year.
EQUITABLE OF IOWA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EIC)") else Response.Write("(NYSE: EIC)") end if %> surged
$8 3/8 to $65 3/4 after the life insurance and annuities underwriter agreed
to be acquired by Dutch insurance and banking force ING GROEP NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ING)") else Response.Write("(NYSE: ING)") end if %> for $68 per share in cash or ING stock. ING gained $2 15/16 to $51 3/16
on the news. Small-cap annuity producer AMVESTORS FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMV)") else Response.Write("(NYSE: AMV)") end if %> rose $1 to $19 1/8. SUNAMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAI)") else Response.Write("(NYSE: SAI)") end if %>, one of the country's
largest producers of annuity contracts, was mostly unchanged even with one
of the world's largest insurance companies coming into the market to grab
a chunk of the high-margin variable annuity market.
Medical instruments company BOSTON SCIENTIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> jumped $6
5/8 to $69 7/8 after pre-announcing second quarter revenues of $474 million,
up 25% year-over-year, including the contribution of revenues from Target
Therapeutics, which merged with Boston Scientific during the quarter. Deutsche
Morgan Grenfell applauded the news by raising its rating on the company to
"buy" from "accumulate." For now, the worries about pricing pressures for
coronary stents are not getting in the way of Boston Scientific shareholders.
A recent bottleneck in production of stents was resolved during the quarter
and is seen as a driver of this quarter's performance.
BARRICK GOLD CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABX)") else Response.Write("(NYSE: ABX)") end if %> rebounded $1 1/8 to $21 3/8 from
yesterday's drop as the company's Chair appeared on CNBC this morning to
explain that Barrick's gold production for the next three years has been
sold for $425 per ounce and that the company sees weakness in the gold market
as an opportunity for Barrick. Barrick is one of the low cost producers of
gold, which together with its intelligent investments in mining properties
and its competitive advantage of having one of the lowest costs of capital
in the industry, gives it the strength to survive a protracted period of
weakness in the gold market. Another strategy employed by such firms during
price weakness is to mine their high-grade gold deposits, where production
costs are lower due to a reduced need for processing and lower labor costs
to extract the gold.
INTERNATIONAL PAPER CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> jumped $5 1/16 to $56 1/4 after announcing that it will cut 9,000 jobs and sell off $1 billion of its assets. The company also reported Q2 earnings per share (EPS) of $0.20 (before charges), which beat estimates of $0.15 by a good margin. Assets being sold off include pulp and uncoated paper facilities in the Northeast as well as timberlands in states with higher taxes, including Pennsylvania and New York. The company said the restructuring moves, including an after-tax charge of $478 million, will be additive to earnings this year and will result in a larger earnings boost in fiscal 1998.
QUICK TAKES: Computer consulting and outsourcing company COMPUTER
TASK GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSK)") else Response.Write("(NYSE: TSK)") end if %> added another $2 5/8 to $36 5/8 on lingering strength
from UBS Securities initiating coverage of the company with a "buy" rating
last week... OUTBOARD MARINE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OM)") else Response.Write("(NYSE: OM)") end if %> picked up $1 1/8 to
$19 1/2 in anticipation of a scheduled update on its efforts to look into
strategic alternatives with the help of its investment bankers... Medical
device company ORTHOLOGIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OLGC)") else Response.Write("(Nasdaq: OLGC)") end if %> shot up $1 3/8 to $7
after announcing a FDA pre-market approval supplement for its "OrthoLogic
1000 bone growth stimulator"... Specialty chemical company and generic drug
producer HAUSER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HAUS)") else Response.Write("(Nasdaq: HAUS)") end if %> moved $1 higher to $6 5/8 after
its customer IMMUNEX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNX)") else Response.Write("(Nasdaq: IMNX)") end if %> announced Canadian approval
to market a generic form of BRISTOL-MYERS SQUIBB's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %> cancer
drug Taxol.
TEKELEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TKLC)") else Response.Write("(Nasdaq: TKLC)") end if %> added $6 5/16
to $43 5/16 after Alex. Brown raised its rating on the network products company
to "strong buy" from "buy," and STAR TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRX)") else Response.Write("(Nasdaq: STRX)") end if %>
gained $1 7/8 to $15 3/8 on the same rating... International telecom carrier
PACIFIC GATEWAY EXCHANGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PGEX)") else Response.Write("(Nasdaq: PGEX)") end if %> gained $4 1/8 to $31 3/4 on
a "buy" rating from Hambrecht & Quist... HARBINGER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRBC)") else Response.Write("(Nasdaq: HRBC)") end if %> moved up $4 1/4 to $32 3/4 on announcing version 3.0 of its STX for
Windows electronic data interchange software... Fax broadcasting company
XPEDITE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XPED)") else Response.Write("(Nasdaq: XPED)") end if %> popped up $2 7/16 to $20 13/16 after
a group of investors, including the company's top management, bid $22.50
per share to buy out the company... CHAMPION ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHB)") else Response.Write("(NYSE: CHB)") end if %>
climbed $1 3/16 to $16 1/4 after the Wall Street Journal reported
on bullish sentiment regarding home builders.
Day labor provider LABOR READY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LBOR)") else Response.Write("(Nasdaq: LBOR)") end if %> hammered out a $1 3/16
gain to $12 1/8 after institutional brokerage Van Kasper raised its rating
on the company to "strong buy" from "buy"... COMPAQ COMPUTER CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> gained $4 7/8 to $119 3/8 in advance of Thursday's earnings report.
GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> jumped on the bandwagon, gaining $1 13/16
to $36 1/16, and memory chip company and PC maker MICRON TECHNOLOGY
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> ticked $1 5/16 higher to $43... MOTOROLA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> traded $2 7/16 higher to $82 13/16, an all-time high, as investors look
forward to the company's earnings release after the bell today... MERRIMAC
INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MRM)") else Response.Write("(AMEX: MRM)") end if %> rose $1 3/8 to $13 3/4 after the electronics
components manufacturer reported Q2 sales of $4.99 million, up 27%
year-over-year, as well as a strong order backlog... Sam Zell real estate
investment trust EQUITY OFFICE PROPERTIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EOP)") else Response.Write("(NYSE: EOP)") end if %> busted out of
the gate, rising $5 7/8 from its IPO price of $21 to close at $26 7/8.
GOATS
Boring Portfolio holding ATLAS
AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLS)") else Response.Write("(Nasdaq: ATLS)") end if %> lost $4 5/8 to $26 1/8 as last Thursday's earnings
warning from the company hits home with analysts and investors. The company
said today that it will write off its leasehold improvements made to five
older Federal Express 747s, which will end their service with the air cargo
carrier in 1998 when the company takes delivery of new 747-400 cargo planes.
The company said higher-than-expected operating costs on the jumbo jets,
along with revenue generation limitations, will cause it to miss this quarter's
earnings estimates of $0.48 per share. Morgan Stanley downgraded Atlas shares
to "neutral" from "outperform," reasoning that earnings volatility will prevail
until Atlas makes the switch to the higher--capacity aircraft.
Earnings warnings were sent forth from DATAWORKS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DWRX)") else Response.Write("(Nasdaq: DWRX)") end if %>
and SEGUE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEGU)") else Response.Write("(Nasdaq: SEGU)") end if %> last night, causing the usual cratering
in the stocks today. Dataworks, which is an "enterprise resource planning"
software company, plummeted $6 1/4 to $13 1/4 on saying that order push-outs,
particularly with one large customer, will cause it to miss revenue estimates,
and presumably EPS estimates, for the quarter. Segue fell $4 7/16 to $8 11/16
after the software development tools maker said it expects to report Q2 EPS
of $0.01, below estimates of $0.08, despite strong revenue growth. Alex.
Brown lowered its rating on the company while SoundView Financial maintained
its "buy" rating on the stock.
QUICK CUTS: Remote access and caching software company XCELLENET INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XNET)") else Response.Write("(Nasdaq: XNET)") end if %> plunged $5 to $8 7/8 after pre-announcing Q2 revenue growth of about 20% and break-even earnings, below EPS estimates of $0.14 and last year's Q2 EPS of $0.05... CULBRO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBO)") else Response.Write("(NYSE: CBO)") end if %> was dragged down $5 to $117 after merger partner GENERAL CIGAR HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MPP)") else Response.Write("(NYSE: MPP)") end if %> reported Q2 revenues of $58.9 million, which were apparently a little light in the eyes of some investors... Charter and freight airline WORLD AIRWAYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WLDA)") else Response.Write("(Nasdaq: WLDA)") end if %> lost $1 5/8 to $6 5/8 even though it announced yesterday that utilization per aircraft increased in the June quarter. Brokerage firm Alex. Brown contributed to the downward action with downgrade to "market perform" from "buy"... CLAREMONT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLMT)") else Response.Write("(Nasdaq: CLMT)") end if %> declined $2 1/2 to $20 1/2 after purchasing a 50% stake in website and intranet developer Communications Informatiques Trilan Canada... REMEDY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMDY)") else Response.Write("(Nasdaq: RMDY)") end if %> dropped $3 3/4 to $36 after SoundView Financial started coverage of the helpdesk software company yesterday with a rather blase "short-term hold" rating... Discount apparel retailer BURLINGTON COAT FACTORY WAREHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCF)") else Response.Write("(NYSE: BCF)") end if %> lost another $1 7/8 to $15 5/8 after yesterday pre-announcing a 1% decline in Q4 same-store sales... WALDEN RESIDENTIAL PROPERTIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDN)") else Response.Write("(NYSE: WDN)") end if %> slid $2 1/8 to $23 3/4 after Raymond James lowered its rating on the real estate investment trust (REIT) to "neutral" from "accumulate."
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
AOL Keeps Connections
AMERICA ONLINE'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> principal
financial asset is its customer base. The online company continues to drive
this home by signing deal after deal with major retailers and traditional
media behemoths. Only nine months after the company's stock bottomed out
in the $20s over mounting fear of a
cash-flow drain and sustained
negative media coverage, shares
have raced ahead as the emphasis has shifted away from the Statement of Cash
Flows to the value of the subscriber base. Does this new found ardor make
sense, and if so, how does one go about valuing the company as a whole?
Since the company shook up its critics by converting to flat-fee access and
radically changing its accounting standards on
October 31, 1996, the shares
have enjoyed a sustained upward climb. America Online's critics had built
a negative case based on its policy of deferring the recognition of
subscriber acquisition costs,
the increasing cost of acquiring
new subscribers due to the
churn in the underlying
subscriber base, and the competitive disadvantage of its hourly subscription
charges relative to flat-fee Internet Service Providers (ISPs). In a calculated
series of tactical moves, America Online's management team met this head-on
by slashing the cost of access for millions of users and switching to an
accounting standard that forced it to recognize all costs related to acquiring
subscribers immediately.
The major victory Case & Co. had won in the AOL's ongoing
Media War would not be fully
appreciated for months afterward. In the space of a few days, America Online
had permanently altered its financial model so that it would emphasize
advertising and retail revenues over subscription charges. Although the company
had more problems implementing the model than it had anticipated because
of the surge in usage that followed the conversion to flat-fee access, the
company's ability to maintain its 8.5 million subscriber base as it put hundreds
of millions into expanding its network proved management's mettle. Even with
the rapid expansion and media attention on frustrated customers unable to
sign on, the company generated a profit under the new "gold standard" accounting
policy a quarter head of expectations.
The foundation that America Online would build upon was clearly visible even
before the late October shift. In a analytical piece written on
August 9th, we wrote: "[Although
t]he real story [with America Online] will not be told for another
four quarters... [f]or someone with a time frame of longer than a year, however,
these shares seem to offer uncommon value." The importance of other revenues
and the subscriber base has always been clear. However, this has only been
recognized on an incremental basis by the financial community as the viability
of the new operating model has materialized. It was clear that the late October
changes and the new operating model would bring the other revenues and the
subscriber story to the fore, prompting us to write in
late October: "...[t]aking into
account the market value of the ANS assets and the potential of trading at
3.0 times sales next year, the math leaves you with a price somewhere in
the $40s."
The 3.0 sales multiple has come to pass because of the increase in high-margin
advertising revenues and the series of high-profile partnerships the company
has announced. The first of these partnerships was with long-distance provider
Tel-Save Holdings. In a deal valued at
$100 million in cash, warrants for 12 million shares of Tel-Save, and
profit-sharing above certain stipulated levels, Tel-Save purchased the rights
to market exclusively to AOL subscribers. Although at the time many criticized
the way the Tel-Save deal was accounted for, questioning whether or not it
would be repeated, AOL began to churn out similar partnerships with retailers
and media companies two months later. In fact, AOL continued to exhibit its
proclivity to cut limited deals with companies in competition with one another,
effectively denying anyone real exclusivity.
AOL inked media agreements with
ABC
News and
Warner
Brothers that either ensured it would retain exclusive areas or that
allowed it to get an exclusive version of an area in return for pointing
its subscriber cannon toward it. AOL signed revenue generating deals with
companies like
AmeriTrade,
CUC
International,
Barnes
& Nobles and today
Amazon.com
and 1-800-FLOWERS, getting either an upfront payment, a share of royalties,
revenues or profits, or some combination of the two. AOL even signed a deal
with
ABC
Sports to get promotion for AOL's ABC Sports Online in May followed by
another deal with
CBS
SportsLine that would make it the first anchor tenant in the AOL Sports
Channel for an undisclosed payment. All this time the company continued to
squeeze out merchandise and advertising revenues, hitting $60.7 million in
the March quarter -- a 37% sequential increase.
Although shares of AMAZON.COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> were up $3 5/8 to $27
5/8 today after its deal, a look at the fine print finds America Online the
true winner. Amazon.com will be the "exclusive" bookseller on AOL.com and
NetFind, but not for the entire AOL service. AOL's Book Central partnership
with BARNES & NOBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %> still stands, and should
BORDERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGP)") else Response.Write("(NYSE: BGP)") end if %> decide it wants online placement, it seems likely
that AOL will have something for them as well. In the Amazon.com deal, America
Online gets $19 million over three years plus part of the revenues if they
go above certain pre-set amounts, although no revenue projections were made.
In the 1-800-FLOWERS agreement, AOL got $25 million plus a limited revenue
share over the four-year agreement that 1-800-FLOWERS is projecting $250
million in revenues from. This deal is within the same range as the CUC deal,
which gave AOL $50 million plus some upside if revenues exceed
expectations.
With America Online able to command upwards of 10% of expected revenues just
for allowing companies access to its subscriber base, investors have definitely
changed their opinion about the company's ability to generate cash. The company
has commitments of $194 million in revenues over the next two to four years
from Amazon.com, 1-800-FLOWERS, CUC International, and Tel-Save alone, with
upside for exceeding revenue targets built in. Given that the fulfillment
for all of these deals is in the hands of the partner, the vast majority
of this money will more than likely flow straight to AOL's bottom line --
meaning $1.61 in EPS less any costs AOL has to endure. Certainly the current
$0.87 EPS estimates for next year do not include the lion's share of these
amounts, as most of these deals have been finalized in the last two months.
Even at $65, America online is valued at $917 per subscriber for its current
8.5 million subscriber base. Clearly, this flurry of deals and the real cash
that is being handed to AOL in these deals indicates that the company's value
is in the subscriber base. With the addition of Robert Pittman to the management
fold -- a man who would appear from the outside to deserve the lion's share
of the credit for doing the day-to-day, detail work that has changed the
focus of AOL Networks over the last nine months -- the company appears to
be well positioned to take the subscriber-based adveretising and merchandise
model into the 21st century. Should the company move to 10 to 11 million
subscribers this year as planned, $1000 per sub -- half of the current
cable subscriber valuations, a medium where direct purchase
is more difficult -- would put the company at around $87 1/2 per share over
the next 12 to 18 months.
CONFERENCE CALLS
7/9/97 (Wednesday)
MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
(402) 220-4831 -- replay available through 7/10
HELEN OF TROY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HELE)") else Response.Write("(Nasdaq: HELE)") end if %>
(800) 275-2442 -- replay through 7/9
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
WE
DELIVER - Get The Evening News delivered
to your e-mailbox every evening!
MORE FOOLISHNESS
It's Double Trouble!
That's right. Every day that the market is open, the Fool introduces you
to a stock that has doubled in the past six months and one that has been
halved. Check them out every day to:
1) Learn about a new company -- what it does and how it's done.
2) Learn why it doubled or tanked -- how might you have found it yourself
earlier, in time to profit from it?
3) Hone your investing skills. What business and investing principles are
at play here?
4) Find out whether our Fools think the stock is poised to rise or fall
now.
You'll find all this and more in the Daily
Double and the Daily
Trouble.
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