HEROES
ASM LITHOGRAPHY HOLDINGS NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> moved up $11 3/16 to $73
15/16 after yesterday announcing a $150 million order for wafer stepper systems
from DRAM maker MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>. Micron will be using
the company's deep ultraviolet steppers to process 16 and 64 Mbit DRAM chips
and will likely be using the deep UV steppers in R&D for advanced 256
Mbit chips. ASM shares are up significantly because this is a very large
order for semiconductor fabrication equipment and for wafer steppers, which
are machines that expose semiconductor patterns on silicon wafers. ASM's
excimer laser supplier, CYMER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYMI)") else Response.Write("(Nasdaq: CYMI)") end if %>, gained $3 3/8 to
$56 7/8 on the news.
Dow Jones Industrial Average components were lighting up the big board today.
INTERNATIONAL PAPER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %>, one of the
Dow Dividend Approach components, gained
another $3 1/16 to $58 following news earlier this week of asset sales and
job cuts. Institutional broker UBS Securities raised its rating on the company
yesterday to "buy" from "hold" and moved its 1998 EPS estimate to $3.15 from
$2.60, according to Reuters. International Paper was also helped today
by GEORGIA PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GP)") else Response.Write("(NYSE: GP)") end if %>, which reported Q2 EPS of $0.30, beating
estimates of $0.24. G-P also said it sees price strength ahead. Dow component
WAL-MART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> climbed $1 7/16 to $35 1/16 after reporting June
same-store sales growth of 6.4%, slightly above 1997's trend of 6% same-store
sales growth. Though growth at Sam's Club lagged somewhat, Wal-Mart comparative
sales figures were killer, rising 7.6% last month, above 1997's trend of
6.7% same-store sales growth.
WARNER LAMBERT CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> gained $10 1/4 to $145 1/2 on takeover
rumors today. According to CNBC, Anglo-Dutch consumer products company
UNILEVER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UL)") else Response.Write("(NYSE: UL)") end if %> is rumored to be looking at merging with the maker
of Zantac over-the-counter antacid, Neosporin, Sudafed, Chiclets, Trident,
and Listerine. Warner Lambert is also the world's largest maker of hard-gelatin
capsules for pharmaceutical companies The rumored price of $200 per share
would value the company over $54 billion, or 7.5 times 1996 sales, 69 times
1996 EPS, and about 50 times 1998 EPS estimates of $4.04. Readers who have
some idea of how to read English or Dutch financial statements are invited
to investigate whether this would be a dilutive stock swap. Based on 1998
EPS estimates of $6.12 for Unilever, such a deal looks like it would be highly
dilutive in the short term.
QUICK TAKES: Orlando-based AIRWAYS
CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAIR)") else Response.Write("(Nasdaq: AAIR)") end if %> gained $1 1/4 to $6 5/8 after agreeing to merge
with VALUJET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VJET)") else Response.Write("(Nasdaq: VJET)") end if %> in a 1-for-1 stock swap. The combined
airline will keep the AirTran Airways name and jettison the irreparably damaged
ValuJet name... Year 2000 conversion software company TSR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSRI)") else Response.Write("(Nasdaq: TSRI)") end if %> jumped $4 1/2 to $24 after introducing its Catch/21 conversion process,
which the company claims will remediate a non-compliant system for $0.25
per line of code in one-third the time of other systems... Management and
consulting services company MAXIMUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMS)") else Response.Write("(NYSE: MMS)") end if %> rose $1 3/8 to
$22 on announcing contracts worth over $30 million with two state welfare
agencies, according to Reuters... US INDUSTRIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: USI)") else Response.Write("(AMEX: USI)") end if %> gained $2 7/16 to $41 3/16 after the diversified manufacturer of such
products as Jacuzzi whirlpool baths said it will sell its stake in the
floundering Ground Round restaurants... Telecom access products company
PREMISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMS)") else Response.Write("(Nasdaq: PRMS)") end if %> gained $1 to $18 1/2 after SoundView Financial
upped its rating on the company to "buy" from "hold," estimating 1997 EPS
of $0.48 and 1998 EPS of $0.39, according to Reuters... TOY BIZ
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBZ)") else Response.Write("(NYSE: TBZ)") end if %> gained $1 5/16 to $9 5/16 after the company's management,
including Carl Icahn, came to an agreement with both Marvel owners and its
creditors, allowing the owner of Spiderman, X-Men, the Incredible Hulk, and
the Fantastic Four to get on with making money and spend less time in bankruptcy
court.
GOATS
Earnings news will be dominating this space for the next few weeks, so we'll
just get right to some disappointments. EXABYTE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EXBT)") else Response.Write("(Nasdaq: EXBT)") end if %>
fell $1 1/8 to $12 7/8 after the tape storage device manufacturer reported
Q2 EPS of $0.05, below estimates of $0.12, on year-over-year revenue growth
of only 7.8%. Software development tools company FORTE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRTE)") else Response.Write("(Nasdaq: FRTE)") end if %> slipped $7/8 to $11 1/4 on pre-announcing Q1 revenues of $14.5 to $15
million and a loss of $0.11 to $0.12 per share, below estimates of a loss
of $0.06 per share.
Other earnings goats include IN FOCUS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INFS)") else Response.Write("(Nasdaq: INFS)") end if %>, which
dimmed $3 1/2 to $22 1/2 after the LCD projection devices manufacturer reported
Q2 EPS of $0.44, just below estimates of $0.45. Prudential downgraded the
stock to "hold" from "buy." PAIRGAIN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAIR)") else Response.Write("(Nasdaq: PAIR)") end if %> lost
$1 11/16 to $16 9/16 after the telecom equipment manufacturer reported Q2
EPS of $0.16, below estimates of $0.18, and said revenues might be flat
sequentially in the coming quarter. UBS Securities lowered its rating on
the company to "hold" from "buy," and Raymond James issued a similar rating
downgrade.
Boating products retailer WEST MARINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WMAR)") else Response.Write("(Nasdaq: WMAR)") end if %> took on water
and lost $6 5/8 to $18 1/8 after reporting June same-store sales growth of
3.6%, which scared the bejeezus out of investors who know that in the past
the company has derived almost half of its yearly operating profits in the
second quarter of the year. Post-Memorial Day June must be the decisive month
of the quarter, as investors lifted West Marine from its lows in the low-$20s
when it reported May same-store sales growth of 2%. With today's report of
1.5% same-store sales growth for the entire second quarter, the only two
large retail brokerages covering the company, PaineWebber and Smith Barney,
both lowered their ratings. Smith Barney lowered its rating to "hold" from
"buy," while PaineWebber now rates the stock as "attractive," moving its
rating down from a "buy." West Marine was the subject of today's Lunchtime
News investment opinion
by Randy Befumo, who agreed more with the latter opinion than the former.
Teleservices company PRECISION RESPONSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRRC)") else Response.Write("(Nasdaq: PRRC)") end if %> blew up like a cluster bomb, falling $5 to $10 and taking the rest of the industry with it. The company today announced that it wouldn't be able to implement a large contract with AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>, which has also played a part in the blowup of APAC TELESERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APAC)") else Response.Write("(Nasdaq: APAC)") end if %> and Fool Port holding ATC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATCT)") else Response.Write("(Nasdaq: ATCT)") end if %>. Because of that contract push out, the company pre-announced Q2 EPS of $0.02 to $0.04, below expectations of $0.18. The rest of the industry recovered from this morning's fall, when APAC was down as much as 13%, as investors hope this is a company-specific event. TELETECH HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TTEC)") else Response.Write("(Nasdaq: TTEC)") end if %> was one industry casualty that didn't recover, finishing down $2 5/16 at $21 1/4.
QUICK CUTS: UROCOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UCOR)") else Response.Write("(Nasdaq: UCOR)") end if %>
lost $1 7/8 to $7 after the urology services company warned that it will
miss Q2 earnings estimates of $0.10 per share and expects to report EPS of
$0.06 because of below-forecast growth in its core diagnostics services
business... Air cargo carrier ATLAS AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLS)") else Response.Write("(Nasdaq: ATLS)") end if %> descended $4
3/16 to $22 1/16 after Merrill Lynch jumped on the bandwagon and downgraded
the shares to "neutral" from "accumulate"... Women's apparel retailer ANN
TAYLOR STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANN)") else Response.Write("(NYSE: ANN)") end if %> fell $2 to $16 7/8 on reporting a 5.8% decline
in June same-store sales as well as a 3.8% decline in total June sales...
Home improvement retailer LOWES COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOW)") else Response.Write("(NYSE: LOW)") end if %> moved down $3
5/16 to $35 after reporting a 1% increase in June comparable store sales.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
Zytec Surges
Although many like to assault the validity of earnings estimates, these numbers
have a very significant impact on what investors are willing to pay for a
given company. Investors routinely glance at forward estimates when determining
whether or not a stock is attractive. This could hardly be more clear than
after witnessing today's 31% rise in shares of ZYTEC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZTEC)") else Response.Write("(Nasdaq: ZTEC)") end if %>, a rise that came after the company said it would actually earn more
than the current estimates. The estimate-smashing performance the company
hinted at caused investors to quickly reprice the company relative to what
investors think it will generate, not the prior estimate that is now null
and void.
The electronic power supply manufacturer jumped $5 7/8 to $25 1/8 today after
telling investors to expect profits somewhere in the $0.39 to $0.41 EPS range.
Results from the Eden Prairie, Minnesota-based company are going to be much
higher than the $0.31 EPS analysts were expecting, comparing favorably to
the $0.22 EPS that the company earned a year ago. Sales will also come in
slightly better than the $69 million management had previously told investors
to expect. Given that estimates are up 30% and the stock is up 30%, it seems
apparent that investors have simply used the jump in earnings for this quarter
as a guide to how much annual estimates are going to be increased.
Was this sort of improvement in earnings a complete surprise? Not totally.
First, investors got an indication that sales at Zytec were doing well back
in May when the company announced sales for the second quarter would be
approximately 20% higher than first quarter sales of $57.6 million. This
meant that the company was going to post its second double-digit sequential
sales increase in a row after three sequential quarterly sales declines in
a row in 1996. Zytec's results have been a little choppy as the large networking
companies to which it sells power supplies have ordered in fits and starts,
not the smooth, even keel that investors prefer. After late 1995's torrid
pace began to slow, many networkers decided to work off their inventories
of Zytec products, slowing down new orders.
Was this slowdown as big a disaster as the performance of the shares over
the last year would seem to indicate? Even though sales were slowing
sequentially, Zytec continued to post solid year-over-year gains in both
sales and earnings. The earnings were especially impressive, as this meant
the company was improving margins. If you back out the $0.27 EPS one-time
gain in the second quarter of last year, Zytec made $0.78 EPS in 1996 compared
to $0.42 EPS in 1995 on sales growth of only 34%. The company seemed to have
been trying to improve shareholder returns even in the choppy quarter-to-quarter
sales environment by ensuring solid year-over-year gains. Even before today's
surprise, Zytec was forecast to earn around $1.13 per share this year, a
47% improvement over last year. Prior to today's rise, the company only sold
at 17 times this year's estimate and 14 times next year's with 31% annualized
growth anticipated.
So, enough about yesterday. How does Zytec
look today? Well, investors jumping into the shares today need to keep in
mind that even though Zytec has had very impressive results, it has not been
without some quarter-to-quarter volatility in revenues. The return on average
equity of 32% over the past year is substantial relative to many other companies.
Profit margins of 4.5%, while not impressive in and of itself, are a definite
improvement from 3.4% a year ago and heading in the right direction. Asset
turns of 2.4 are solid, inventory turns of 8.7 are good, and 48 days sales
outstanding are reasonable. The only yellow flag is that investors can still
see the echo of Zytec's 1984 management-led leveraged buy-out from Control
Data Corp. in the form of $20 million in long-term debt on the balance sheet,
roughly 9% of revenues and 22% of assets.
As the $0.41 EPS number is ahead of the average $0.34 EPS a quarter Zytec
was supposed to earn next year, forward numbers are certainly going to be
notched up should this bulge in business continue. However, investors should
be somewhat restrained in their euphoria. Although Zytec's
return
on equity is fine and comes from a balance sheet that is only leveraged
a reasonable amount, the overall margins seem very sensitive to shifts in
sales volume given the size of this earnings surprise. Should Zytec be able
to do an average of $0.35 EPS in the last two quarters of this year, the
company will probably post around $1.45 EPS for the year, putting the company
again at 17 times revised forward estimates. If investors can ascertain whether
or not the previously forecast 31% growth is possible into next year, the
stock may still be cheap, as 31% growth on $1.45 EPS would put the company
at 13 times next year's earnings. Certainly Zytec is worth a look-see.
CONFERENCE CALLS
MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
(402) 220-4831 -- replay available through 7/10
HEILIG-MYERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %>
(Re: June sales and the purchase of Mattress Discounters)
(804) 254-3939 (option 1) -- replay
WE
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ANOTHER FOOLISH
THING
Arizona Stock Analysis
Why Arizona? Because, like Delaware, many companies are chartered there, taking advantage of the beneficial business environment. Small, under-followed emerging Arizona growth companies were a terrific place to invest over the past few years and Stephen Barnes, the Editor of "Arizona Stock Analysis," believes this will continue in the future. His strategy of identifying winners before the Street catches on has been most profitable, with his average selection up an annualized 189% through March. Obviously, there can be no assurance that future selections will enjoy the same returns, but Yon believes there is considerable merit to picking up the winners before the Street's analysts pile on. Yon began sharing his views online in the fall of 1995 in the "Folly in Arizona" folder (part of the 50 states boards) and his analysis has led to the publication of the Arizona Stock Analysis, a monthly newsletter available by e-mail or fax. If this piques your interest, check it out FoolMart.
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
Julia Wilson (TMF Delete), one more
Fool
Editing