HEROES
Since the formation of CLEARVIEW CINEMA GROUP
<% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CLV)") else Response.Write("(AMEX: CLV)") end if %> in December of 1994, it has grown from 4 to 17 theaters and
from 8 to 69 screens. The company operates "multiplex" theatres in affluent
suburban communities in the New York/New Jersey metropolitan area and hopes
to grow through the acquisition or development of in-town theatres. Clearview
began public trading this morning on the American Stock Exchange at $8 1/4
and rose $1 7/16 to close at $9 11/16. Comparing Clearview with CARMIKE
CINEMAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKE)") else Response.Write("(NYSE: CKE)") end if %>, the "Wal-Mart" of the theatre industry, Carmike
has trailing revenues of $480.6 million with 2700 screens, which is about
$178,000 per year per screen. Clearview has trailing sales (as of March)
of $10.7 million with 69 screens, which is $154,940 per year per screen.
Assuming that the 1 million shares that lead underwriter Prime Charter plans
to issue stay at $9 11/16, Clearview trades at 1.07x sales while industry
leader Carmike trades at 0.72x sales. With Carmike, already a proven grower,
getting more revenue per screen, Clearview seems "clearly" overvalued on
these sales numbers.
Options traders on the Pacific Stock Exchange were quoted today attributing
the rise of GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> from $3 1/4 to $40 1/2 on the
news that United Parcel Service (UPS) reached an agreement with the Teamsters
union. This makes sense, considering that Gateway ships everything through
UPS, but flies in the face of "efficient market theory" (go figure). Gateway
hasn't been down any appreciable amount since the strike began at the beginning
of the month, so this price rise cannot be seen as a return the a price level
before the strike when everything was running smoothly. Yet another crack
in the efficient market wall, since nothing has changed about the earnings
power of the company's assets. Regardless, Gateway shares are up, whether
its because of new servers launched by a subsidiary, anticipation of blowout
earnings by direct seller bellwether DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>,
or elation after the conclusion of a crippling strike.
Credit card companies returned from the dead today, possibly as a result
of the Federal Reserve's inaction on interest rates today. Investors might
be shifting their concern with such companies from credit-quality worries
to just plain loan growth worries. Investors are ready to see some loan growth
this quarter, and the maintaining the status quo on short-term interest rates
won't hurt that. CAPITAL ONE FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> shot up $4 to $39;
ADVANTA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADVNA)") else Response.Write("(Nasdaq: ADVNA)") end if %> climbed $1 5/8 to $34 1/2; and BANC ONE
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %>, with its recently acquired FirstUSA unit, added $2 1/8 to
$55. Another sector that came back today was the consumer staples. PROCTER
& GAMBLE CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> rose $3 3/4 to $138 7/8; GILLETTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: G)") else Response.Write("(NYSE: G)") end if %> moved up $2 11/16 to $85 3/4; and WARNER-LAMBERT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> ticked
$4 5/8 higher to $135 1/16.
QUICK TAKES: Architectural and engineering firm URS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: URS)") else Response.Write("(NYSE: URS)") end if %> gained $1 15/16 to $15 9/16 as it announced an agreement to buy privately owned Woodward-Clyde Group for $100 million in stock and cash... Prepress and printing company GRAPHIC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GII)") else Response.Write("(NYSE: GII)") end if %> said it expects fiscal 1998 second quarter earnings to exceed analysts' consensus estimates of $0.22 per share, which boosted the stock $1 5/8 to $16 1/2... O'SULLIVAN INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OSU)") else Response.Write("(NYSE: OSU)") end if %> constructed a $1 3/16 gain to $14 as the ready-to-assemble furniture maker posted 4Q EPS of $0.26, beating estimates of $0.23... BAY NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> moved $3 1/8 higher to $37 1/8 on the strength of a press release that guided consensus market expectations higher for the internetworking products company... After restating less of a loss in net-earnings for its 1996 year, vehicle parts maker FEDERAL MOGUL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMO)") else Response.Write("(NYSE: FMO)") end if %> shifted $2 15/16 higher to $35 11/16... Truck and bus maker NAVISTAR INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAV)") else Response.Write("(NYSE: NAV)") end if %> gained $1 9/16 to $23 7/16 on renewed shareholder confidence as it declared a quarterly dividend of $1.50 per share on its $6.00 cumulative preferred stock... French oil company ELF AQUITAINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELF)") else Response.Write("(NYSE: ELF)") end if %> gushed $3 5/16 to $56 1/16 after reporting an oil discovery off Angola that the company called "one of the biggest in Africa."
Holly Golightly's safe haven, TIFFANY & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIF)") else Response.Write("(NYSE: TIF)") end if %>, sparkled $2 1/2 to $43 1/4 after reporting 2Q EPS of $0.29 and beating estimates by a penny... PAMIDA HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PAM)") else Response.Write("(AMEX: PAM)") end if %> recharged $1/2 to $5 after the mass merchandise retailer received approval from shareholders to change the equity structure of the company... Prudential Securities started coverage of DI INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: DRL)") else Response.Write("(AMEX: DRL)") end if %> with a "buy" rating, moving the onshore contract driller $5/16 to $5 5/8 on the news... Groupware applications provider ON TECHNOLOGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONTC)") else Response.Write("(Nasdaq: ONTC)") end if %> rose $1 1/4 to $4 1/4 standing on the shoulders of SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> after the two companies announced a product alliance... SYSTEM SOFTWARE ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSAX)") else Response.Write("(Nasdaq: SSAX)") end if %> grew $3 1/8 to $16 1/8 on reporting record 3Q revenues and EPS of $0.08 with charges... Memory semiconductor maker RAMTRON INTERNATIONAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMTR)") else Response.Write("(Nasdaq: RMTR)") end if %> got a $1 5/32 boost to $8 3/16 after announcing that its memory technology will be used in personal computers running on DIGITAL EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> Alpha microprocessors and VLSI TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLSI)") else Response.Write("(Nasdaq: VLSI)") end if %> Polaris chipsets... IFR SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFRS)") else Response.Write("(Nasdaq: IFRS)") end if %> passed the test with investors today, rising $1 7/8 to $23 1/2 after the manufacturer of electronic test instruments for wireless and fiber optic communications reported 4Q EPS of $0.37, which was $0.06 higher than expectations
GOATS
Power delivery systems maker ADVANCED ENERGY INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AEIS)") else Response.Write("(Nasdaq: AEIS)") end if %>
fell $4 1/8 to $27 1/2 after the company announced last night that it will
sell 2.5 million shares, one million that the company is issuing and the
rest from selling shareholders. The company said the cash from the offering
will go to covering debt related to its $16 million acquisition of Tower
Electronics, a company that supplies power systems for manufacturing operations
at companies like 3Com's U.S. Robotics unit. Given that the new shares represent
only a 4.5% dilution to present shareholders, why would the stock be down
more than that? Possibly because shareholders thought the Tower acquisition
was being financed with debt. That looked entirely feasible judging by last
quarter's balance sheet. However, if Tower is as profitable as Advanced Energy,
a purchase at 1 times sales ultimately financed by a stock issuance seems
pretty reasonable.
COMPREHENSIVE CARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMP)") else Response.Write("(NYSE: CMP)") end if %> slid $1 1/4 to $11 after the
mental health and substance abuse healthcare provider reported fourth quarter
financial results and the resignation of its Chief Operating Officer. The
company reported a loss that was loaded down with all sorts of charges and
other one-time items, making it difficult to compare with last year's results.
Revenue growth in the last quarter outpaced yearly revenue growth, indicating
that its strategy of turning to HMO contracts instead of individuals requesting
treatment is working. Revenue per share growth (which is a measure used to
analyze the effect of share issuance) also looked good in the last quarter
as compared to the entire year. With a totally mucked up income statement,
it would be helpful if the company would provide a balance sheet in its press
release to give investors more data on how the company performed in its most
recent quarter.
Information technology consulting company ANALYSTS INTERNATIONAL CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANLY)") else Response.Write("(Nasdaq: ANLY)") end if %> fell $3 3/8 to $35 5/8 after reporting that net income for
the year ended June 30, 1997 increased 32% to $16,381,000, or $1.09 per share,
just missing estimates of $1.10 per share. Even as EPS growth looked great,
operating margins (before pass-through subcontractor billings) still stayed
below 5%, not all that attractive even if the Year 2000 issue will be a growth
driver going forward. Why pay 32 times trailing EPS and 25 times forward
estimates when larger computer consulting firms offer
turnkey Year 2000 solutions
along with other higher-margin services and are selling at lower multiples?
ELECTRONIC DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EDS)") else Response.Write("(NYSE: EDS)") end if %> is selling at about 25 times trailing
EPS and 17 times 1998 estimates, and COMPUTER SCIENCES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSC)") else Response.Write("(NYSE: CSC)") end if %> is selling at 30 times EPS and 19 times March 1999 estimates.
QUICK CUTS: Software and services company ROSS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROSS)") else Response.Write("(Nasdaq: ROSS)") end if %> fell $1 7/32 to $3 23/32 after pre-announcing record quarterly revenues but saying those revenues will be below the company's internal estimates... KAYNAR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTIC)") else Response.Write("(Nasdaq: KTIC)") end if %> lost $2 to $24 after the aerospace products company completed its acquisition of Singapore-based Jazpac Engineering... Uniform rental company UNITOG CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UTOG)") else Response.Write("(Nasdaq: UTOG)") end if %> got starched $1 3/4 to $26 3/4 after posting $0.32 EPS after the bell yesterday. Analysts expected $0.34 per share... Auto parts retailer and wholesaler PEP BOYS -- MANNY, MOE & JACK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PBY)") else Response.Write("(NYSE: PBY)") end if %> slipped another $1 1/16 to $25 7/8 after last week's earnings miss... After exploding upward last week on news of the cloning of a telomorase catalytic protein, biotech company GERON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GERN)") else Response.Write("(Nasdaq: GERN)") end if %> fell back $4 1/8 to $12 today.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
PC Makers Are Today's Good Newsmakers
PC "box" makers were the talk of the Street today as a number of factors
converged to move the individual participants in the industry. Early this
morning, shares of GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> opened higher after being
held and did not look back. News that the strike at United Parcel Service
(UPS) was over cleared up a black cloud that had hung over the direct computer
seller's head, as UPS is one of the company's main shipping partners. Gateway
2000 closed the day up $2 3/4 to $40.
Also affecting the computer manufacturers was the anticipation of DELL
COMPUTER'S
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> quarterly earnings, released minutes after
the market closed. Analysts had been expecting $0.54 EPS, but Dell came through
with $0.59 EPS. Unfortunately, the so-called "whisper" numbers were looking
for $0.60 EPS, the highest estimate. Although the stock closed up $2 5/16
at $84 11/16, CNBC reported that the shares were down to $82 in after-hours
trading. With option volume on Dell at record highs heading to the close,
speculators looking to profit from an earnings surprise might be in for a
treat.
Over the next few days as investors digest Dell's quarterly report, the stock
may retrace any ground loss due to the unrealistic expectations set by traders
as the actual financials behind the quarterly earnings are quite impressive.
Contrary to the conventional wisdom talks about Dell's "commodity" business
and warns of "price squeezes," Dell's average selling price for its products
actually rose during the quarter as customers bought higher-end systems stacked
with more and more options. With higher prices and servers contributing a
record 8% of revenues, gross margins rose in the quarter to 22.2%, up from
22.1% last year. Many analysts had been anticipating that gross margins would
fall as the second quarter of 1996 was characterized by very favorable component
prices for Dell, making this meager 0.1% gain quite unexpected.
Going down the profit and loss statement, operating margins rose to 10.5%
from 8.9% last year. The company reduced operating costs by 1.6% in spite
of the fact that it added 1,600 new employees in the second quarter alone,
increasing headcount to 13,300, or 11.1%. The company's sheer need for manpower
to fuel its growth may be a future problem, but for right now growth in employee
costs apparently can barely keep up with the growth in revenues. Breaking
apart the operating costs, sales, general and administrative (SGA) expenses
increased 0.7% sequentially to 10.0% of sales, but the company's research
& development (R&D) expenses relative to sales dropped 0.3% to 1.7%.
The drop in R&D as a percentage of sales might signal a red-flag to many
investors used to companies that actually develop technology, but as a precision
electronics manufacturer, Dell is really in a different business than an
Intel or a Microsoft that need to spend on R&D. One of the advantages
of Dell's focus on computers instead of the technology inside is that the
company's R&D cost is minimal since it is the component manufacturers
in the industry that foot the bill to advance the technology, not the "box"
makers. Although Dell does have to design the PCs, servers, and workstations
it manufactures, it does not have to pay for the design of any of the components
and is really limited in some ways by the components it can get off the
shelf.
Another major misconception about Dell is that it consumes a lot of cash
as a part of its operations. Although many people mistaken believe that Dell
is capital-intensive, looking at the company's capital expenditures relative
to the earnings before interest, taxes, depreciation and amortization (EBITDA)
you get a much different picture. Dell only spends 10.7% of its EBITDA on
capital expenditures, compared to 30% for Intel Corp. and 21% for Coca-Cola.
Because Dell uses so little capital in its business, it can generate a
return
on capital in the 167% range and use excess cash to buy back shares.
These share repurchases help to maximize shareholder value by using excess
cash the company does not need to decrease the number of shares outstanding,
increasing the earnings per share by the same proportional amount.
Dell's ability to generate cash and repurchase shares is amplified by the
fact that it uses very little working capital to operate. For instance, Dell's
inventory turns in the quarter were the annualized equivalent of 33 times,
meaning that Dell kept approximately 11 days of inventory at any one time.
At another manufacturer, money might have been tied up in keeping more days
of inventory, meaning that money could not go to buy back shares. And buying
back shares is something Dell knows how to do quite well. Dell Computer
repurchased 5.7 million shares of stock during the quarter, bringing the
total shares repurchased over the last 18 months to 59.3 million. Dell has
outstanding "put" contracts to purchase another 27 million shares over the
next few months, indicating that the systematic share repurchases should
continue over the next three to four quarters if the company keeps up at
its current rate. Dell should only have 340 to 345 million shares outstanding
at the end of fiscal 1999 at the current rate of repurchase, down from the
362 million the company will probably end the year with.
To cap off the PC day, Dell competitor COMPAQ COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>
had some positive news of its own. While Dell was growing more than three
times faster than the market, slightly slower growing Compaq was meeting
some very ambitious goals in the lucrative workstation market. Compaq stated
that it was "on track" to sell 100,000 workstations in the first 15 months
after its entry into the market -- workstations being sold at the expense
of established, less efficient manufacturers like Hewlett-Packard, IBM, and
Silicon Graphics. Compaq came out of nowhere to take the top market share
spot in the U.K., intimating that this should be good for both Compaq and
Dell Computer, which entered the workstation market this quarter. Overall,
personal computer companies appear to have exceeded all but the most unreasonable
expectations for growth.
CONFERENCE CALLS
DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>
(800) 839-3306 -- replay from 8:30 pm EDT through 8/20 @ 8:30 pm EDT
WOOLWORTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %>
(800) 953-6481 -- replay
CARRAMERICA REALTY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRE)") else Response.Write("(NYSE: CRE)") end if %>
(800) 677-1575 (password 1234) -- replay through 8/19
(402) 998-0105 (password 1234) -- replay for international callers
DAYTON HUDSON CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
(800) 633-8284 (reservation # 2943671) -- replay through 8/20 @ noon EDT
HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(800) 633-8284 (code: 2857062) -- replay through 8/22
HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
(402) 220-3005 -- replay through 8/22
ROSS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
(402) 222-9936 -- replay through 8/26
THIS WEEK'S CONFERENCE CALL SYNOPSES
HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> Call
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