HEROES
Cereal company KELLOGG CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: K)") else Response.Write("(NYSE: K)") end if %> popped up $5 9/16 to $97 7/16
after reporting a 14% increase in second quarter sales volume, translating
into a 4% increase in revenues. EPS rose to $0.83 (before charges) from $0.45
and beat estimates of $0.73, and the board voted to raise the dividend by
7%. Kellogg actually added to market share, which may be emboldening it to
test the waters with a price hike after the hair-raising price cuts that
have been the hallmark of consumer products in the 90s. The company looks
like it has met the generic enemy and can claim a victory in this round through
its operating cost cuts, which boosted operating margins by 6.0 percentage
points. Through six months of this year, Kellogg has also delivered $425
million directly to shareholders through share repurchases and dividends.
Enterprise resource planning software company
INTERACTIVE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTE)") else Response.Write("(Nasdaq: INTE)") end if %> surged $2 1/2 to $10 on announcing
an agreement to merge with manufacturing software company DATAWORKS
CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DWRX)") else Response.Write("(Nasdaq: DWRX)") end if %> in a stock swap valued at $57 million, or $11.58
per share as of last night's close. Dataworks lost $1 1/4 to $13 1/8 even
though the company said the deal will add to earnings in 1997 and trades
at under 12 times 1998 EPS estimates of $1.14. Adjusted for net cash, the
combined company is now valued at 8.4 times
enterprise
value to 1998 estimates. Because of worries over last quarter's earnings
report in which Dataworks said it saw some order delays, it may stay at this
level until it executes on those contracts. However, some may see some value
here with analysts' five-year growth estimates in a range from 27% to 40%.
CDW COMPUTER CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDWC)") else Response.Write("(Nasdaq: CDWC)") end if %> surged $8 9/16 to $73 1/16 after
the direct marketer of computer stuff reported Q2 revenues of $304.5 million
and EPS of $0.59, which smothered estimates of $0.50. The company is now
priced at 26 times 1998 EPS estimates of $2.70, slightly under the mean estimate
on DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> for the same time frame and just about
the same multiple to Morgan Stanley's 1998 EPS estimate for Dell. CDW is
a great company that differentiates itself with fast order turnarounds and
good cost controls. The company also sports a
return
on invested capital (ROIC) level (taking out in-process construction
assets) above 50%. That smokes almost any retailer and a lot of PC box makers
themselves, but Dell it ain't.
QUICK TAKES: INTELLIGROUP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITIG)") else Response.Write("(Nasdaq: ITIG)") end if %> gained $5 1/4 to $16 1/2 after the consulting, systems integration, and software developer reported Q2 revenues of $19.2 million, up 75% year-over-year, and EPS of $0.11, which beat estimates of $0.10... Semiconductor packing company PEAK INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PITLF)") else Response.Write("(Nasdaq: PITLF)") end if %> moved up $3 3/8 to $19 1/2 on reporting a 21% increase in Q1 revenues and EPS of $0.38, beating the lone estimate of $0.34... VDI MEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VDIM)") else Response.Write("(Nasdaq: VDIM)") end if %> gained $1 7/8 to $15 3/8 after the video duplication and distribution services company announced the acquisition of Multi-Media, a privately held industry player... Semiconductor company VLSI TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLSI)") else Response.Write("(Nasdaq: VLSI)") end if %> jumped $3 7/8 to $33 1/2 on announcing that it will sell its semiconductor design automation software unit to AVANT! CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %> for cash and stock... SCHULTZ SAV O STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAVO)") else Response.Write("(Nasdaq: SAVO)") end if %> gained $2 3/8 to $20 3/4 after the grocery retailer and wholesaler reported Q2 EPS of $0.37 after a charge... Shipping pallet manufacturer and recycler PALEX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PALX)") else Response.Write("(Nasdaq: PALX)") end if %> rose $1 1/2 to $13 1/2 on announcing the acquisition of similar companies... ARNOLD INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AIND)") else Response.Write("(Nasdaq: AIND)") end if %> added $2 to $19 1/4 after the trucking and warehousing industry reported a 37% increase in Q2 EPS... Systems integrator and server maker UNISYS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UIS)") else Response.Write("(NYSE: UIS)") end if %> rose $1 9/16 to $11 3/16 on no news, possibly on speculation of a buyout following the Fujitsu deal to acquire AMDAHL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AMH)") else Response.Write("(AMEX: AMH)") end if %>.
GOATS
German industrial giant DAIMLER-BENZ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAI)") else Response.Write("(NYSE: DAI)") end if %> lost $3 15/16 to
$79 3/4 after reporting a 26% advance in first half EPS. The company said
it expects more earnings expansion in the second half, but Morgan Stanley
and Merrill Lynch both cut earnings estimates on the company. While the maker
of Mercedes Benz cars and trucks, diesel engines, aerospace products, and
Freightliner trucks said it expects double-digit growth in all divisions
in the second half of the year, analysts cut estimates on Germany's largest
industrial company because of an increase in its tax rate. Morgan Stanley
cut its 1998 earnings estimate to $3.96 per share, but that's still above
the one First Call EPS estimate of $3.57. Similarly, Merrill Lynch estimates
that 1997 EPS of $3.91 will drop to $3.11 in 1998.
Specialty insurance underwriter WESTBRIDGE CAPITAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WBC)") else Response.Write("(NYSE: WBC)") end if %>
declined $1 3/4 to $7 1/2 on reporting a second quarter loss of $1.07 per
share (before extraordinary items), missing by a good margin the single EPS
estimate of $0.17. The company is in an interesting pickle in that it got
caught by increased claims expenses at the same time that it was raising
premiums. Its marketing efforts put in place to offset the decrease in business
also didn't kick in soon enough. Meanwhile, the company had to write off
deferred policy acquisition costs (a broker's compensation, for instance,
which goes on the balance sheet and is amortized over the life of the policy)
because of policy cancellations resulting from the premium increases. Today's
reaction from investors indicates that they don't think the company has a
hold on its business model and market positioning.
QUICK CUTS: APPLIED GRAPHICS TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGTX)") else Response.Write("(Nasdaq: AGTX)") end if %> fell $2 1/2 to $37 1/4 after the pre-press, print media distribution, and electronic media spot distribution services company reported Q2 EPS of $0.21, in line with estimates... NUTRITION FOR LIFE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NFLI)") else Response.Write("(Nasdaq: NFLI)") end if %> backed down $1 3/16 to $6 7/8 after reporting a 90% decrease in Q3 EPS of $0.03 due to increased expenses associated with expanding distribution as well as an increase in its backlog... Network file server and software company AUSPEX SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASPX)") else Response.Write("(Nasdaq: ASPX)") end if %> slid $1 3/16 to $9 13/16 on reporting a 15% increase in Q4 revenues of $54.8 million and EPS of $0.21 (before an acquisition-related charge), missing estimates... PERCEPTRON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRCP)") else Response.Write("(Nasdaq: PRCP)") end if %> fell $3 3/8 to $29 1/2 after the 3-D machine vision systems maker reported Q2 EPS of $0.45, which beat estimates of $0.43... Polish pay TV company @ENTERTAINMENT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATEN)") else Response.Write("(Nasdaq: ATEN)") end if %> lost $2 1/4 from its IPO price of $21 to close at $18 3/4... DONNA KARAN INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %> lost $2 1/16 to $11 15/16 after reporting a second quarter loss and forecasting a full year loss of $0.55 per share, below the mean EPS estimate of $0.65... Footwear and accessories company KENNETH COLE PRODUCTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KCP)") else Response.Write("(NYSE: KCP)") end if %> fell $2 3/4 to $12 1/2 on reporting Q2 EPS of $0.06, missing estimates of $0.21... Battery maker EXIDE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EX)") else Response.Write("(NYSE: EX)") end if %> was discharged for a $1 5/16 loss to $19 15/16 after reporting Q1 EPS that were slightly better than expectations... TENET HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THC)") else Response.Write("(NYSE: THC)") end if %> slid $1 13/16 to $28 1/8 after yesterday's apparently good earnings report... TELEBRAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBR)") else Response.Write("(NYSE: TBR)") end if %> lost $8 1/8 to $140 after reporting an 11% increase in first half net income... Cardiovascular pharmaceutical development company MEDCO RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MRE)") else Response.Write("(AMEX: MRE)") end if %> fell $1 1/4 to $11 1/8 after the FDA said that its new drug application for ViaScint is not approvable and that "further work is needed"... AT PLASTICS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATJ)") else Response.Write("(NYSE: ATJ)") end if %> lost $1 to $9 1/2 on reporting a 47% decline in Q2 EPS.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
Getting the Business, and understanding what you've got
A few days ago in the
Lunchtime
News "Fool Plate Special" column I wrote about how some recent positive
news from ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> might impact another manufacturer of networking equipment, ACT NETWORKS
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANET)") else Response.Write("(Nasdaq: ANET)") end if %>. Ascend Chief Executive Mory Ejabat had commented that
business for the company's new Cascade Communications subsidiary had been
picking up and should show sequential growth, particularly for frame-relay.
Since ACT Networks also manufactures frame-relay equipment and was pummeled
the next day for crappy earnings, I though this was a rather interesting
divergence and might warrant some further research.
As I really did not have much to add to the discussion of the frame-relay
business beyond this interesting, but only preliminary, observation, I wrote:
"...those who know more about frame-relay than the average investor might
want to check the company out." To my surprise, I got quite a bit of mail
because of this comment from readers essentially asking whether or not I
really believed that an investor should understand the basic business a company
is in before they put money into it. If so, these notes queried, how does
an investor go about trying to understand a company's basic business well
enough to consider investing? What tools are out there that they can use?
In an attempt to elucidate this important point, I thought it might be useful
to take readers through a preliminary examination of a company that caught
my eye today, ORBIT FR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORFR)") else Response.Write("(Nasdaq: ORFR)") end if %>. Orbit rose $2 5/8 to $14 1/4
today after the company reported quarterly earnings of $0.20 per share, four
cents above the estimate from the lone analyst who tracks the company on
a quarterly basis according to First Call. Glancing at the company's press
release this morning to decide whether or not it might make fodder for the
Lunchtime News column, I noticed that the company had increased revenues
by 194% and profits by a whopping 20,000% by looking at the "Consolidated
Statements of Operations."
When a small, recently public company can report impressive earnings growth
on very strong sales growth, I normally make a mental note of the company
and go back to check on it later. After writing my Lunchtime News column
on the interesting earnings growth posted by cereal vendor
Kellogg
Co., I went back to Orbit's financials to look at them a little bit closer.
A quick assessment of operating margins showed that Orbit had increased them
to 24.3% from 4.3% the year earlier. Operating margins, the percentage of
money a company gets to keep after paying all manufacturing and operating
expenses, is an excellent guide to the underlying profitability of the business
without being obscured by interest income, interest expense, tax expense,
or contributions to net income from "other" sources. With a 24.3% operating
margin on only $5.3 million in revenues, Orbit struck me as a very profitable
business.
Orbit gained most of its operating margin increase by only growing "General
& Administrative" and "Sales & Marketing" expenses by about 45% year
over year, although "Research & Development" also grew much slower than
revenues, and gross margins increased a few percent. A newly public company
controlling operating expenses to the point where it is already surprising
the analysts who helped to bring the company public is always very interesting.
It was time to figure out what the heck Orbit FR did and whether or not there
was any reasonable way that I could learn enough about its business to understand
what was happening at the company.
The blurb at the bottom of the press release stated that Orbit made microwave
test and measurement equipment for a variety of applications, mainly
telecommunications and satellite communications. Although helpful, this was
not necessarily what I was looking for. Because I knew from the press release
that Orbit only came public on August 1st, I knew that the company's S-1
filing would be available on EDGAR, giving me a wonderful opportunity to
read all about the company courtesy of the underwriters. Although 10-Qs and
10-Ks are great and everything, there is nothing more comprehensive than
an S-1 filing -- the filing a company makes before it comes public. The S-1
details the business in a way that is not required in the 10-Qs or 10-Ks,
and therefore makes this little document a great source for information about
the industry.
Because I prefer looking for SEC filings by ticker instead of company name,
I normally use the
www.edgar-online.com
or www.freeedgar.com websites. Dialing
up Orbit's S-1 on one of these services, I began to eagerly read. In the
"Business" section of the filing, I discovered that Orbit made automated
microwave test and measurement systems both piecemeal and as turnkey solutions
for prices between $50,000 and as much as $2.5 million. After this, there
was a huge list of all the specific products the company made and how they
worked. For instance, one system Orbit manufactures tests antennas for signal
quality, direction, strength, and interference. Another system tests
cellular/PCS/pager units, another cellular/PCS/pager base stations, another
satellite systems, and so on.
The most important information about the company was not as much the details
of its products but what its products specifically did and who was buying
them. The company broke its business into four segments: wireless communications,
satellite, automotive, and aerospace/defense. The customer names are pretty
impressive, although it is difficult to assess how much a company with a
sales run-rate of $20 million a year is really selling to these companies.
The company listed its primary competitors as SCIENTIFIC ATLANTA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFA)") else Response.Write("(NYSE: SFA)") end if %>, Nearfield Systems, AEROFLEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ARX)") else Response.Write("(AMEX: ARX)") end if %>, System Planning Corp.,
and Rantec/ESCO. Given that two of its competitors are public, the next step
after reading through the S-1 is to look at the filings of the competitors
that are public to get a sense of how much they compete and what kind of
revenues they generate. The goal of looking at the competitive landscape
is to figure out the relative positions of all the companies and determine
what that might mean for future growth.
Another overlooked information source about the company is its own website.
Orbit has a particularly good one
(www.orbitfr.com) where I discovered
that Orbit has an agreement with Hewlett-Packard to serve as a channel partner
for its antenna measurement systems. The listing of the company's international
sales offices was also rather impressive for what I had originally taken
to be a really small company. Another important piece of data offered on
the website is the company's main phone number. By calling the company's
Investor Relations office and asking some questions about what the company's
market share in its business is and whether or not there are any industry
trade organizations that track sales, I could find a whole new channel of
information on the company.
While certainly none of this constitutes due diligence in my book, I do believe
that an investor who takes the time to look at the company's information,
the website, competitor information, industry group information, and who
has chatted with Investor Relations can learn an awful lot about whether
or not there is an opportunity in a company in a fairly short time. As Orbit
earned $0.35 per share in the first half of the year and current estimates
call for $0.65 per share in the full year, I would assume that the estimates
are too low and work from there to gather the necessary information to come
up with better numbers. Assuming something more like $0.80 per share for
this year and $1.10 per share for next year, even at nearly double the IPO
price of $8.25, Orbit could prove interesting.
CONFERENCE CALLS
TIDEWATER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDW)") else Response.Write("(NYSE: TDW)") end if %>
(800) 475-6701 (#348218) -- replay
PAPA JOHN'S PIZZA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PZZA)") else Response.Write("(Nasdaq: PZZA)") end if %>
(800) 642-1687 (ask for Papa John's Int'l conference call) -- replay
CYRIX CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRX)") else Response.Write("(Nasdaq: CYRX)") end if %> and
NATIONAL SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSM)") else Response.Write("(NYSE: NSM)") end if %>
Regarding merger
(800) 642-1687 (code: 534426) -- replay through 8/1
LERNOUT & HAUSPIE SPEECH PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LHSPF)") else Response.Write("(Nasdaq: LHSPF)") end if %>
(800) 677-4611 (passcode: 11345) -- replay through 8/1 @ 7:00 pm EDT
(402) 220-2168 (passcode: 11345) -- replay number for international callers
FAMILY GOLF <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FGCI)") else Response.Write("(Nasdaq: FGCI)") end if %>
(800) 275-2442 -- replay through 8/2 @ 9:00 am EDT
SMARTALK TELESERVICES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTK)") else Response.Write("(Nasdaq: SMTK)") end if %>
Regarding acquisition of ConQuest
(800) 964-3574 -- through 8/2 @ 11:00 am EDT
08/04/97 (Monday)
CREE RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CREE)") else Response.Write("(Nasdaq: CREE)") end if %>
(800) 642-1687 (code: 523215) -- replay
(706) 645-9291 (code: 523215) -- replay for international callers
08/05/97 (Tuesday)
BA MERCHANT SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BPI)") else Response.Write("(NYSE: BPI)") end if %>
(800) 964-3941 -- replay through 8/7
(402) 344-6640 -- replay for international callers
08/05/97 (Tuesday)
AMRION INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMRI)") else Response.Write("(Nasdaq: AMRI)") end if %>/WHOLE FOODS MARKETS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %>
(800) 633-8284 (code: 2979188) -- replay through 8/7
08/05/97 (Tuesday)
CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>
(800) 633-8284 (code: 2875731) -- replay through 8/15
THIS WEEK'S CONFERENCE CALL SYNOPSES
NAT'L SEMI - CYRIX (Merger)
Call
ATLAS AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLS)") else Response.Write("(Nasdaq: ATLS)") end if %>
Call
PRIME MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMSI)") else Response.Write("(Nasdaq: PMSI)") end if %>
Call
WE
DELIVER - Get The Evening News delivered
to your e-mailbox every evening!
ANOTHER FOOLISH
THING
CHECK IT OUT: 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 year 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 from
here.
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