HEROES

COMPAQ COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> rose $4 3/8 to $73 3/4 on the heels of yesterday's $5 gain after telling institutions at Cowen & Co.'s investment conference that it expects to achieve year 2000 revenues of $50 billion, 25% higher than previous expectations of $40 billion. By including the revenues of recently acquired Tandem, an online transaction processing system maker, in Compaq's trailing revenues, the company is looking at compound annual growth over the next 3 1/2 years of 27%, five percentage points higher than previous guidance and analysts' expectations. DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> also gained $4 1/8 to $96 1/2 on this information as well as on comments from founder Michael Dell, who said near-term demand is turning out to be quite robust.

Companies following Compaq higher today included APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %>, which gained $1 11/16 to $34 1/2. Applied Magnetics is a supplier of recording heads and head stack and head gimbal-assemblies to disk drive makers, including WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %>. Western Digital also moved up today, rising $3 3/8 to $48 5/8 as investors feel confident that the company is poised to grow revenues at a rate even better than Compaq can achieve. This is because the number of drives per PC is growing, so the drive market is growing at a multiple to the PC market, and annual price deflation is about the same as for PCs. Disk drive biggie SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> rose $3/4 to $37 on the news that it has cut back its production schedule. Disk drive investors, always leery of irrationality in the industry, were glad to hear that news.

Construction and paper products company GEORGIA PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GP)") else Response.Write("(NYSE: GP)") end if %> grew $4 1/16 to $98 5/8 on announcing that it will create a separate class of stock to reflect the value of its timberland business, which consists of 5.8 million acres of timberland. The new class of stock will be distributed to current GP shareholders on a 1-to-1 basis. The company will still be controlled by Georgia Pacific, but is intended to allow the market to value the timberland business separate from the rest of the company, much as EDS traded for many years as a tracking stock separate from General Motors. Other paper companies moved up on the news, as investors believe these companies will have to enact similar strategies. BOWATER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOW)") else Response.Write("(NYSE: BOW)") end if %> gained $4 3/4 to $55 5/8, INTERNATIONAL PAPER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> rose $2 13/16 to $55 7/8, and BOISE CASCADE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCC)") else Response.Write("(NYSE: BCC)") end if %> picked up $3 3/16 to $41 3/16.

QUICK TAKES: MONARCH CASINO & RESORT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCRI)") else Response.Write("(Nasdaq: MCRI)") end if %> gained $1 1/2 to $7 after saying that it expects to post third quarter earnings of $0.15 to $0.17 per share... Utilities and applications software company EXCALIBUR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EXCA)") else Response.Write("(Nasdaq: EXCA)") end if %> rose $1 7/16 to $12 7/16 after announcing a multimedia web crawler that the company says is the first of its kind... Oil and gas exploration and production company COSTILLA ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COSE)") else Response.Write("(Nasdaq: COSE)") end if %> increased $1 5/16 to $11 1/2 on announcing that it has increased production past the 15,000 barrels of oil equivalent (BOE) per day mark, up from 11,700 BOE per day in the second quarter of this year... CALPINE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPN)") else Response.Write("(NYSE: CPN)") end if %> moved $1 1/4 higher to $22 after UBS Securities initiated coverage of the power generation company with a "buy" rating... Trucking and transportation services company CALIBER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBB)") else Response.Write("(NYSE: CBB)") end if %> drove $3 1/4 higher to $50 1/4 after Smith Barney raised its rating to "outperform" from "neutral"... Hotel and casino operator RIVIERA HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: RIV)") else Response.Write("(AMEX: RIV)") end if %> rolled $1 1/2 higher to $14 1/2 after announcing late Tuesday that it signed a definitive agreement to be acquired by R&E Gaming Corp. for $15 per share in cash or about $250 million...Company benefits outsourcer ABR INFORMATION SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABRX)") else Response.Write("(Nasdaq: ABRX)") end if %> rose $2 3/4 to $28 after posting 4Q EPS of $0.13 versus $0.08 for the previous year.

GOATS

Speculation that INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> might purchase all of 3-D graphic chips developer 3DLABS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDDDF)") else Response.Write("(Nasdaq: TDDDF)") end if %> sent shares skyward over the last couple of days. However, the stock was brought down to earth today, falling $10 9/16 to $36 3/16, when analyst Charles Boucher of UBS Securities downgraded the firm to a "buy" from a "strong buy" due to the stock's price. A report issued by the firm said, "While Intel is an investor in 3Dlabs, we think it is unlikely that Intel would acquire 3Dlabs at this point due to the high valuation of 3Dlabs and because Intel's internal 3D graphics development has been through a partnership with Real3D, a subsidiary of Lockheed Martin (LMT)." Robertson Stephens jumped on board and cut the company to "long-term attractive" from "buy."

Home healthcare concern APRIA HEALTHCARE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHG)") else Response.Write("(NYSE: AHG)") end if %> fell $2 13/16 to $14 today after announcing yesterday that it expected pre-tax third quarter income in the range of $0.31 to $0.37 per share, compared with $0.40 from a year ago and First Call estimates of $0.37. Alex. Brown & SBC Warburg downgraded the company as a result. Apria got the wind knocked out of it earlier in the year when modifications to Medicare legislation were passed, making oxygen reimbursement cuts and freezing prices on durable medical equipment. Apria derives most of its revenue from home respiratory therapy, home infusion therapy, and the provision of home medical equipment. Approximately 70% of the company's respiratory therapy revenues, which make up about half of the company's total revenues, are derived from the provision of oxygen systems. Initial estimates of the legislation impact call for a fiscal 1998 shortfall of approximately $62 million (both revenue and pre-tax).

QUICK CUTS: Electrical components manufacturer AZTEC MANUFACTURING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZZ)") else Response.Write("(NYSE: AZZ)") end if %> crashed $2 9/16 to $21 3/8 after despite posting 2Q EPS of $0.28 that beat estimates... Wisconsin HMO UNITED WISCONSIN SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UWZ)") else Response.Write("(NYSE: UWZ)") end if %> fell $2 1/16 to $29 1/2 after being downgraded by ABN/Amro to "hold" from "buy"... Electronics distributor MARSHALL INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MI)") else Response.Write("(NYSE: MI)") end if %> fizzled $2 9/16 to $38 after reporting 1Q EPS of $0.55 versus estimates of $0.59... Casino operator GRAND CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %> was dealt a $15/16 loss to $15 3/16 after it said last night that the Mille Lacs Band of the Ojibwe, which owns the Grand Casino Mille Lacs, decided not to renew its management contract with Grand Casinos... SBC Warburg Dillon Read downgraded CONVERSE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVE)") else Response.Write("(NYSE: CVE)") end if %> to "outperform" from "buy," driving the stock down $5/8 to $10 11/16... Fiberglass insulation and housing materials maker OWENS CORNING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OWC)") else Response.Write("(NYSE: OWC)") end if %> dropped $2 1/8 to $39 1/16 after saying that its third quarter EPS will be between $1.00 to $1.05, falling way below the First Call consensus estimate of $1.33.

A drop in graphics component pricing as well as a downgrade of 3DLABS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDDDF)") else Response.Write("(Nasdaq: TDDDF)") end if %> today moved shares of "graphics accelerator solutions" company S3 INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SIII)") else Response.Write("(Nasdaq: SIII)") end if %> down $ 1 11/16 to $13 7/16... Auto finance company MONEY STORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MONE)") else Response.Write("(Nasdaq: MONE)") end if %> fell $3 5/16 to $28 13/16 despite saying it expects to meet analysts' estimates for the third quarter of 1997. The company is providing additional reserves to cover higher losses in its non-prime auto finance division... Telecom equipment provider DSC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIGI)") else Response.Write("(Nasdaq: DIGI)") end if %> got cut $2 13/16 to $27 5/16 after Brown Brothers Harriman & Co. cut its long-term rating on the company to "market perform" from "outperform" but kept its long-term "hold" rating... Well, the lawsuits have begun. The recall of two diet drugs sparked lawsuits against AMERICAN HOME PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %>, which fell $4 1/4 to $69 15/16, and INTERNEURON PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IPIC)") else Response.Write("(Nasdaq: IPIC)") end if %>, which dropped $2 13/16 to $13 11/16... After reporting earnings on Tuesday, ORACLE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> was downgraded today by Cowen & Co. to "buy" from "strong buy." The shares dropped $3 1/2 to $36 1/16... HARMONIC LIGHTWAVES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HLIT)") else Response.Write("(Nasdaq: HLIT)") end if %> fell $1 7/16 to $15 11/16 after it announced the signing of a definitive agreement to acquire New Media Communication Ltd., a provider of broadband, high-speed data delivery software and hardware technology... GEOSCIENCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSCI)") else Response.Write("(Nasdaq: GSCI)") end if %>, a seismic data acquisition equipment maker, rumbled $1 lower to $11 3/4 after it announced that its Syntron Inc. subsidiary received new contracts valued at more than $20 million.

FOOL ON THE HILL
An Investment Opinion by Louis Corrigan

Miller Time?

Atlanta-based MILLER INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MLR)") else Response.Write("(NYSE: MLR)") end if %> is the largest maker of towing equipment in America and a leading consolidator of a fragmented market for towing services. So it knows something about how to clean up after an accident. Good thing, because Miller investors have been on a wild ride that just ended with a smash-up.

The stock quadrupled last year to a January 1997 high of $22 7/8 following news that Miller had won an important patent infringement case, solidifying its rights over widely used towing technology. Yet in the very first Daily Double, fellow Fool Mark Weaver expressed skepticism about Miller's lofty PE of 59, and the stock immediately collapsed, dropping to $9 3/4, in part due to heavy short-selling of the shares. The bulls returned the stock to favor, though, as Miller's fast pace of acquisitions promised continued blockbuster growth, with FY97 numbers reported July 8 showing EPS up 30% to $0.30 on a 62% jump in sales. After trading as high as $18 1/4 in early August, the shares got hit by a negative article in Forbes and then got crunched again last Friday for a 31% drop to $10 3/8 on word from the company that equipment sales grew just 7% in the first quarter and that the industry growth overall was "flattening."

Miller has been one of the top growth stories of the 1990s, rated #3 on Forbes' 1996 list of America's top 200 small companies, with a remarkable five-year annual return-on-equity of 47%. Sales have quadrupled in four years, from $71.6 million in FY93 to $292.4 in FY97 ended April 30. Founder and co-CEO William Miller started the business by buying up some of the industry's name brand manufacturers (Holmes International, Challenger Wrecker, and Century Wreckers) that had fallen on hard times due to heavy debt burdens accumulated during the leveraged buyout mania of the 1980s. Recent growth, though, has been fueled by stepping up the pace of acquisitions.

During 1996, Miller purchased two leading European towing equipment manufacturers, S.A. Jige Lohr Wreckers and Boniface Engineering Limited, boosting its share of the European market well into double digits. Last September, it also acquired Vulcan International, a leading domestic manufacturer of towing equipment. Co-CEO Jeffrey Badgley and CFO Adam Dunayer said in a telephone interview that Miller now controls about a third of the U.S. towing equipment market and about 25% of the world market.

Consolidating a manufacturing base was only the beginning. Miller has also been building up its own sales system, purchasing 10 towing equipment distributors since July 1996. Despite worries that this move put Miller in competition with its customers, Miller officials say these outlets actually complement the company's existing network of 140 independent distributors, by assisting with inventory management, for example. Perhaps even more significant, the firm has also entered the market for towing services. Since February, its RoadOne unit has been buying towing service providers with the intent of making RoadOne a national brand. While individual RoadOne affiliated companies may do work for local chapters of national organizations such as AAA, RoadOne overall is more oriented toward the commercial side of the business, providing service to large fleet operators such as United Parcel Service and J.B. Hunt. When the most recently announced deals are completed, Miller will own 58 RoadOne operating companies with annual revenues of about $120 million. It also has affiliate agreements with 389 towing services.

Friday's crash had little to do with first quarter results, which had sales up 40% to $85.4 million and EPS up 57% to $0.11. Indeed, the results showed operating margins rose to 9.3% from 7.6% in the year-ago period, in line with fairly steady progress in raising operating margins over the last few years (6.7% in FY94, 8.3% in FY95, 8.0% in FY96, and 8.2% in FY97). Management also appears to be managing the business with an eye toward operational efficiencies. The company announced that it intends to close its factory in Olive Branch, Mississippi and move its wrecker production to the firm's Ooltewah, Tennessee plant. In March, the company shifted its car carrier production from Olive Branch to its factory in Greeneville, Tennessee. The production shift will lead to a one-time after-tax charge of $2 to $2.5 million in the second quarter, but the recent moves are expected to increase operating efficiencies and boost profits because the two Tennessee plants had available capacity and also generate "substantially higher margins" than the Mississippi factory.

What worried investors was with the mere 7% growth in equipment sales, which was below the company's internal target and out of line with the fairly consistent 12% annual growth in actual tows. Miller is gaining market share, as witnessed by the recent 18% fall-off in sales at Jerr-Dan Corp., a subsidiary of DURAKON INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRKN)") else Response.Write("(Nasdaq: DRKN)") end if %> and a leading manufacturer of towing equipment. Company officials believe that the overall sales slowdown is due to "temporary uncertainty in the industry" as firms wait to see who ends up with the towing business of large customers such as GENERAL MOTORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %>, which recently signed on with AAA.

Decelerating sales growth could spell real trouble for the company since its acquisition binge has been paid for with its high-multiple stock. The company raised $60 million last year in two public offerings, and it has also been buying distributors and towing service companies in cash/stock deals that often run about 75% stock. But Miller has depleted its cash with recent dealmaking, turning now to long-term debt, which has risen from $11.3 million to $26.4 million in just one quarter. Fears of a slowdown have led analysts to cut their earnings estimates, with First Call now reporting FY98 consensus EPS estimates of $0.50 and FY99 numbers of $0.65, with a low estimate of just $0.60 from Stephens Inc. analyst Scott Alaniz. On the other hand, that's still 34% growth over the next seven quarters.

Miller's balance sheet suggests that the firm is still in good shape. Even with the increase in long-term debt, the debt-to-equity ratio is a modest 0.17. Earnings before interest and taxes (EBIT) for the first quarter were $7.92 million, a whopping 29 times the $0.27 million in interest payments, for a very safe cover ratio over 29. Even so, the current debt financing plus the improving operating margins have already boosted the return-on-equity (ROE). Due to model year transitions, Miller's first quarter sales are usually lower than the previous year's fourth quarter sales. With the business still growing and seasonal factors giving us a conservative first quarter number, we can take the run-rate to get annualized earnings of $19.2 million. Divide that by the $152.2 million in shareholder equity, and we get a ROE of 12.6%, nicely ahead of FY97's 10.5%.

Miller can increase both its ROE and EPS numbers by taking on a little more debt to pay for future acquisitions. In the past, the company has paid about 0.75 times sales for towing service companies, with at least 75% of the deal done with Miller stock. With the stock even now trading around 1.5 times sales, these purchases clearly were a neat arrangement for Miller shareholders, despite the dilution. The company recently registered 5 million shares for use in future deals, and nearly all these shares are still available to the company, even after the most recently announced deals close. And CFO Dunayer says the recent drop may help the dealmaking since potential targets now believe they're getting paid in underpriced stock. Yet for that reason, Miller is likely to use a little more cash in its acquisitions if the stock price doesn't recover in fast order.

Assume, then, that Miller has five million shares to trade after a slight recovery to $12 a share, or $60 million worth of stock. Assume also that the company nearly doubles its long-term debt to $50 million, or about a third of equity. After accounting for the current portion of that debt ($4.8 million), Miller is left with $18.8 million to spend on new targets. The company would then have $78.8 million for shopping, which should be able to buy about $100 million in annual revenue. Add that to the $256 million in sales for the rest of the year, suggested by the first quarter run-rate, then tack on modest 8% growth, and you arrive at about $470 million in FY98 sales. Assume slightly higher operating margins of 10%, and you get $47 million minus $4 million in interest payments ($50 million times 8%) and $15.9 million in taxes (figured at 37%), for income of $27.1 million. Divide that by 48.6 million shares, and you get EPS of about $0.56, or 12% above current estimates.

Miller officials say the towing service business should continue to boost the company's margins. And with 30,000 companies in that business, there's still a lot of room for consolidation despite talk of Miller competing with its own equipment customers. The stock's recent crash, then, could offer investors an opportunity to tow away some nice profits. That's particularly true if the company can deliver anything close to analysts' projected 34% long-term growth.

CONFERENCE CALLS

MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
Regarding Pre-earnings announcements
(402) 220-4826 -- replay

AMERICAN GENERAL CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGC)") else Response.Write("(NYSE: AGC)") end if %>
Regarding acquisition of Western National Corporation
(800) 642-1687 (code: 615008) -- replay

EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %>
Earnings shortfall pre-announcement
(402) 398-4725 -- replay through 9/22

COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
Java-related UniCenter TNG Announcement
(888) 243-0816 -- replay through 9/18 @ 5:00 pm

FLEET FINANCIAL GROUP/QUICK & REILLY
Re: Fleet's acquisition of Quick & Reilly
(800) 839-3444 -- replay through 9/19 @ 1:00 pm EDT

09/18/97 (Thursday)
HEILIG-MEYERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %>
(804) 254-3939 -- replay

THIS WEEK'S CONFERENCE CALL SYNOPSES

ORACLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> Call
EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> Call
MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> Call

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Louis Corrigan (RgeSeymour), a Fool
Fool On The Hill

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Heroes & Goats

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Editing