HEROES
BOSTON CHICKEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOST)") else Response.Write("(Nasdaq: BOST)") end if %> jumped
$1 7/32 to $13 1/8 on initiation of coverage by Robert M. Cohen & Co.,
which gave the Boston Market franchisor a "speculative buy" recommendation.
Despite being down from its 52-week high of $41 1/2, the company isn't selling
at that great of a discount to the price/operating earnings multiples on
competitors MCDONALD'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %> and WENDY'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WEN)") else Response.Write("(NYSE: WEN)") end if %>.
The company runs huge margins, due in large part to counting as revenues
the interest from the bunch of money the company has lent to franchisees
(which you would see below the operating income line for most companies).
The thing holding back results is very slow-turning capital, which turns
over at 1/3 the rate of McDonald's and 1/8 the rate of fast growing fast
food company PAPA JOHN'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PZZA)") else Response.Write("(Nasdaq: PZZA)") end if %>. This weekend the Fool will
take a look at fast food in its
Industry
Snapshot.
Telecom backbone provider QWEST COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> rose
$2 25/32 to $42 3/4 after saying yesterday morning that it is planning to
expand its fiberoptic network mileage by almost a quarter, adding capacity
in the Southeast, California, and Texas. The great thing about Qwest's expansion
of its network is the way it finances the build-outs. Qwest finds customers
who need more telecom capacity, such as interexchange carriers like Frontier
Communications, and has them put up a bunch of cash. The fiber that Qwest
then provides in return for the cash is "dark," meaning that any operating
costs beyond that the customer must share. The biggest expense in laying
fiber, by far, is digging the cross-country conduits. By providing telco
customers with this service and then plowing that cash back into laying its
own fiber in the same conduits, Qwest has a great financing source and creates
economies of scale because the marginal cost for each fiber installed decreases
by a good amount.
Florida gives us several heroes today. SAVANNAH FOODS & INDUSTRIES
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFI)") else Response.Write("(NYSE: SFI)") end if %> gained $2 1/2 to $17 9/16 after the sugar producer said it is
committed to merging with private company Florida Crystals. IMPERIAL HOLLY
CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IHK)") else Response.Write("(AMEX: IHK)") end if %> has said that it wants to acquire Savannah, which investors
have taken to mean that another bidder's entry into the game will drive up
the ultimate acquisition price of Savannah. Elsewhere in the Sunshine State,
HARBOR FLORIDA BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HARB)") else Response.Write("(Nasdaq: HARB)") end if %> rose $5 3/4 to $53 1/2 after
the Florida bank said it will convert from a mutual holding company to a
capital stock corporation.
In the energy sector, things were hopping for offshore drillers and energy services firms. Offshore construction, maintenance, and repair company GLOBAL INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLBL)") else Response.Write("(Nasdaq: GLBL)") end if %> jumped $5 1/8 to $35 on optimism over energy industry fundamentals. Deepwater driller FALCON DRILLING CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> gained $1 1/4 to $30 7/8 on strong drilling rig lease-sale rates. Diversified contract driller and submarine services company TRANSOCEAN OFFSHORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIG)") else Response.Write("(NYSE: RIG)") end if %> also rode the wave higher today, gaining $4 11/16 to $93 9/16, and deepwater driller DIAMOND OFFSHORE DRILLING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DO)") else Response.Write("(NYSE: DO)") end if %> rolled $3 3/4 higher to $51 1/8.
QUICK TAKES: Computer telephony
and voice messaging equipment company CENTIGRAM COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGRM)") else Response.Write("(Nasdaq: CGRM)") end if %> picked up $2 1/2 to $13 1/2 on reporting a Q3 operating loss of $0.10
per share, better than the median First Call estimate of a loss of $0.14
per share... GENERAL MAGNAPLATE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GMCC)") else Response.Write("(Nasdaq: GMCC)") end if %> gained $1 5/8
to $7 1/2 after the maker of metal coatings reported Q4 EPS of $0.27, up
80% year-over-year... Web search engine company LYCOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> rose $4 1/8 to $33 7/8 after reporting narrower losses for its fourth
quarter. Investor CMG INFORMATION SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %> gained $2
3/8 to $21 7/8 on the news... DSP GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSPG)") else Response.Write("(Nasdaq: DSPG)") end if %> picked up $4
1/32 to $33 1/4 after announcing that Japan's Fujitsu will license the company's
digital signal processor architecture and development tools... Wholesale
and retail travel agency TRAVEL SERVICES INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRVL)") else Response.Write("(Nasdaq: TRVL)") end if %>
gained $1 7/8 to $23 7/8 on announcing a 30% increase in pro-forma Q2 revenues
and EPS of $0.35, beating estimates of $0.33... NANOMETRICS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NANO)") else Response.Write("(Nasdaq: NANO)") end if %> rose $1 9/16 to $12 1/4 after announcing the opening of a U.K. sales
and support facility. Prudential also started coverage of the silicon wafer
metrology equipment company with a "buy" rating... ALLERGAN LIGAND RETINOID
THERAPEUTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALRI)") else Response.Write("(Nasdaq: ALRI)") end if %> jumped $2 1/4 to $20 3/8 after yesterday
announcing positive results in a Phase III trial of its Panretin Topical
Gel for AIDS-related Kaposi's sarcoma.
Hydraulic systems and construction products company COMMERCIAL INTERTECH
CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEC)") else Response.Write("(NYSE: TEC)") end if %> gained $1 1/4 to $16 7/8 after reporting Q3 operating
EPS of $0.44 and issuing bullish comments about the current quarter... Kidney
dialysis services company TOTAL RENAL CARE HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRL)") else Response.Write("(NYSE: TRL)") end if %> rose
$3 3/16 to $46 13/16 after reporting that it has completed a number of
acquisitions in the past two months that have raised the company's patient
capacity by about 8%... Investment advisor PIMCO ADVISORS LP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PA)") else Response.Write("(NYSE: PA)") end if %> gained $2 1/16 to $29 3/8 on the strength of a Merrill Lynch upgrade
to "intermediate-" and "long-term buy" from (and this is amusing)
"intermediate-term accumulate" and "long-term neutral"... SUPERIOR TELECOM
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SUT)") else Response.Write("(NYSE: SUT)") end if %> moved up $3 5/8 to $38 1/8 after the telecom wire and cable
and central office multiplexer manufacturer reported Q1 EPS of $0.74, up
48% over last year's pro-forma results and better than estimates of $0.66...
ANDREA ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AND)") else Response.Write("(AMEX: AND)") end if %> surged $5 to $39 on announcing a coupon
offer with Microsoft and on the strength of other recent marketing agreements...
Latin America beer and soda company QUILMES INDUSTRIAL SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LQU)") else Response.Write("(NYSE: LQU)") end if %>,
rose $1 3/8 to $13 1/2 on reporting a 21% increase in Q2 EPS of $0.085, in
line with the First Call mean estimate. First Boston raised its rating on
the company to "buy" from "hold."
GOATS
CONNETICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNCT)") else Response.Write("(Nasdaq: CNCT)") end if %> is a biotechnology company with an interesting growth strategy. Connetics buys pharmaceutical products (from large drug companies) that have not been fully developed or commercialized. The company selects products that can jump immediately into late-stage trials, which ramps up the launch period to a minimal 3-5 years. The theory is that this reduces the time, cost, and risk of new product development. Today Connetics lost almost half its value, dropping $4 7/16 to $5 1/16, after it said it is shelving its plan to sell gamma interferon, a treatment for atopic dermatitis, after poor late-stage Phase III trial results contradicted Phase II results. So much for lower risk. The severity of the drop seems to be an overreaction though, as Connetics still has a strong product pipeline and has reported successful Phase II results for a scleroderma treatment called ConXn. It also plans to go ahead with its betamethasone mousse product for the treatment of psoriasis.
QUICK CUTS: The nation's largest consumer furniture maker FURNITURE
BRANDS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FBN)") else Response.Write("(NYSE: FBN)") end if %> fell $2 13/16 to $17 1/2 after the company
told analysts its third quarter EPS would fall a penny or two short of
expectations... ICC TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICGN)") else Response.Write("(Nasdaq: ICGN)") end if %> makes climate-control
systems based on desiccant technology in conjunction with its partner
ENGELHARD CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EC)") else Response.Write("(NYSE: EC)") end if %> -- today ICC was slammed $1 1/16 to $5 1/8
on the announcement of a restructuring of that partnership...
Data networking company ADTRAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADTN)") else Response.Write("(Nasdaq: ADTN)") end if %> dropped $4 3/16 to $39 9/16 after Goldman Sachs lowered its rating
on the company to "market outperform" from "trading buy"... JACOBSON STORES
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JCBS)") else Response.Write("(Nasdaq: JCBS)") end if %>, which operates 24 fashion specialty stores in six states,
today announced that its stores will have expanded evening hours on a year-round
basis. The stock slid $7/8 to $8 3/8... Transaction and message management
software company BEA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAS)") else Response.Write("(Nasdaq: BEAS)") end if %> fell $1 25/32 to $19 3/4
after reporting a 2Q loss of $0.06 per share, versus estimates of a loss
of $0.02 per share... SHIVA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %> slid $7/8 to $15
as the stock retreated from rumors that LUCENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> will buy
out the bedraggled remote access wares maker... Shares of network software
firm NOVELL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVL)") else Response.Write("(Nasdaq: NOVL)") end if %> fell $19/32 to $9 3/8 on after it
denied takeover talks... Network World yesterday reported that there
might be some delays in modem standard setting, which may have played a role
in today's $2 1/16 slide to $47 3/8 in 3COM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %>.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
Ceridian Cuts To The Chase With Restructuring Plan
CERIDIAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEN)") else Response.Write("(NYSE: CEN)") end if %> today announced an aggressive
restructuring that dumps two of the companies business units. The plans were
detailed in an 8-K filing with the Securities & Exchange Commission (SEC).
The news caused investors to lop $5 15/16 off the stock price, sending the
shares down to $37 1/16 and leaving them well below its 52-week high of $53
1/2. Shares had been rallying since the company hit bottom in mid-April,
partially due to the company bringing strong earnings to the bottom line
in the last few quarters. Most famous for its participation in the fast-growing
payroll processing industry, Ceridian is a diversified information services
company with a stake in defense electronics -- that is, until today.
Ceridian plans to sell its defense electronics business called Computing
Devices International (CDI) by the end of 1997. No specific date was disclosed,
no specific purchaser was named, and no specific price was discussed, leaving
investors with little information other than the fact that a good-sized chunk
of Ceridian's revenues and profits will be disappearing. Part of the market's
negative reaction to the story may be because CDI is such a substantial
contributor to Ceridian's overall results, generating 35% of Ceridian's revenues
in the last quarter. Net CDI, Ceridian will be a substantially smaller company
and the stock price slump may account for this fact. However, this not
necessarily all bad news as the move completely focuses Ceridian on its
diversified portfolio of information services businesses and probably is
a net plus to the company.
Investors should consider what kind of price Ceridian can get for the business
and what it might be able to do with that cash. With the ongoing consolidation
in the defense electronics business, if it is ever going to sell the unit,
now is probably the time. With Hughes Electronics, Texas Instruments, Logicon,
and Westinghouse all selling defense electronics companies at pretty sweet
multiples over the past few years, Ceridian has a once-in-a-century opportunity
to divest itself of the unit at a fair price and reinvest the proceeds into
the core information processing business, a net benefit to shareholders.
Given that the industry consolidation also makes it difficult for the remaining
mid-sized players to compete, Ceridian is getting out while the getting is
good. The Texas Instruments unit, for instance, sold for $2.95 billion, or
1.6 times 1996 revenues. At the same multiple, Ceridian could get a cool
$880 million for the business, or roughly a quarter of the company's
enterprise value.
Despite the large revenues, getting CDI's business out of the Ceridian profit
and loss statement will result in a net improvement. CDI only contributed
20% of the company's gross profits in spite of pushing its gross margins
up almost 2% in the last quarter versus the prior year. After Ceridian dumps
CDI, it may also be able to cut operating costs related to running the unit,
pushing its overall operating margins up as a result and forcing the market
to give it the same kind of valuation other information services companies
routinely garner. Certainly when institutional investors look at information
services companies like AUTOMATED DATA PROCESSING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AUD)") else Response.Write("(NYSE: AUD)") end if %> and
PAYCHEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAYX)") else Response.Write("(Nasdaq: PAYX)") end if %> and compare their margins with Ceridian's,
Ceridian now falls short. After the divestiture, investors will be able to
do apples-to-apples comparisons with similar companies without going through
mathematical contortions.
Ceridian also announced that it was terminating further development of its
CII payroll processing software that was being developed for large companies
with complex needs. Installation of the software was just too expensive to
produce an acceptable return on the company's investment. This business had
been viewed by some analysts as a significant contributor to growth going
forward, meaning that its sudden absence will force them to revise their
assumptions about what kind of profits Ceridian can generate in the next
year or two. The company will take a $150 million charge to write-off the
capitalized software development costs and goodwill associated with the 1994
acquisition of Tesseract Corp., which was the basis for the CII project.
All in all, it makes for a huge capital allocation disaster and, like the
defense electronics divestment, has profound implications for forward earnings
power.
Investors should realize that the CII write-down is not an attempt by Ceridian
to get out of the payroll processing business. The company's Signature product
is still alive and kicking, allowing companies to outsource their "back office"
payroll functions in an affordable manner. As part of the payroll business,
the company also gets a large "float" as a result of tax withholding and
checks passing through that allow it to generate substantial interest income.
The business is highly stable with a large percentage of accounts renewing
year-after-year, making for very little in the way of earnings surprises.
With CII dead and CDI soon to be sold, this business becomes a much larger
part of Ceridian's overall financials and will probably make Ceridian's results
much more consistent. Ceridian claims that the CII development has helped
it make a number of enhancements to Signature that make it more attractive
to the large companies CII was designed for, and Ceridian believes it will
still be able to sell product in this market.
After writing down CII, the human resources business will see margins rise
3%, a hefty increase that will do a lot to staunch investor disappointment.
This will leave Ceridian completely in information processing, with four
separate units attacking four separate markets. Although the human resources
business will be the most substantial, Comdata provides funds transfer and
cash advance services to the transportation and gaming industries, and Arbitron
provides ratings for various media properties. The resulting company will
have higher margins and management targets growth at 15% in sales and 20%
in earnings going forward. What should investors do to figure out whether
or not the current price is compelling? Come up with a sale price for CDI,
which Bear Stearns is now shopping around, and figure out what kind of earnings
the remaining company can generate. If it is anywhere close to the $3.00
EPS that analysts are currently looking for, this could be rather interesting
at these levels.
CONFERENCE CALLS
ACE CASH EXPRESS INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:AACE)") else Response.Write("(Nasdaq:AACE)") end if %>
(800) 642-1687 (give last name and confirmation #566078) -- relay through
8/27
WE
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Randy Befumo (TMF Templr), a Fool
Fool on the Hill
Dale Wettlaufer (TMF Ralegh), another
Fool
Heros & Goats
Brian Bauer (TMF Hoops), and yet
another Fool
Editing