Suburban Chicago-based savings & loan company WESTCO BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCBI)") else Response.Write("(Nasdaq: WCBI)") end if %> gained $3 1/8 to $29 1/4 on reporting stellar Q3 EPS of $0.47, ahead of expectations for those looking for full year EPS of $1.63. Backing out gains from the sale of REO (Real Estate Owned), the company achieved an efficiency ratio (roughly analogous to operating expense ratio for other companies) of 37.8%. Compare that to what is normally considered excellent at 55% (lower is better). With a 9-month return on assets of 1.5%, the company matches up with the best in the banking business, but with a 9-month return on equity below 10%, its ranking there is low. The difference is the company's rather substantial unused capital, which could be either lent out, used to acquire another company, or returned to shareholders, all of which present interesting opportunities for management to boost return to shareholders in coming years.
Canadian manufacturer and marketer of local and wide area network products NEWBRIDGE NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NN)") else Response.Write("(NYSE: NN)") end if %> keeps charging ahead even as its valuation relative to its peers keeps stretching out. The stock gained $3 15/16 to $67 11/16 today. Do rumors that the company will team up with 3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> justify the current run? The stock has advanced strongly in past five months though the answers to some questions are far from clear. What sort of sales clash might come of such an alliance? How vulnerable to lumpiness in orders for backbone and access switching products is the company? How is its integration of UB Networks products going? Finally, does today's press release with Siemens and Broadband Networks justify a further addition to market cap of over $500 million? At a forward P/E of 150% to 200% that of its peers, one of the worst capital turnover factors in the industry, and a P/E on trailing 12-months' EPS nearly twice that of industry leader CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>, some investors are seeing nothing but upside and no downside in Newbridge at the moment.
QUICK TAKES: Oil services company BJ SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BJS)") else Response.Write("(NYSE: BJS)") end if %> gained $3 5/16 to $77 1/2 after yesterday announcing its new PowerVision geological information database service at an industry conference... CARMIKE CINEMAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKE)") else Response.Write("(NYSE: CKE)") end if %> rose $1 13/16 to $33 3/8 after Merrill Lynch raised its short-term rating on the company to "accumulate" from "neutral"... The "G" shares of CMS ENERGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPG)") else Response.Write("(NYSE: CPG)") end if %> gained $1 1/8 to $23 1/2 on announcing that its 128 megawatt cogeneration plant in Argentina that will service that country's energy biggie, YPF SOCIEDAD ANONIMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: YPF)") else Response.Write("(NYSE: YPF)") end if %>, went into production a month ahead of expectations... Electronic design automation company ANSOFT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANST)") else Response.Write("(Nasdaq: ANST)") end if %> rose $3 to $15 due to the "IBD effect," that is, a favorable write-up in the New America section of Investor's Business Daily.
AASTROM BIOSCIENCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASTM)") else Response.Write("(Nasdaq: ASTM)") end if %> jumped $1 3/16 to $7 3/4 after announcing the award of two grants from the National Institutes of Health for the "Transplantation and Gene Modification of Human Stem Cells"... SCHERING PLOUGH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %> gained $2 3/8 to $56 7/8 after the pharmaceuticals and medical products company reported better-than-expected Q3 EPS of $0.48... COR THERAPEUTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CORR)") else Response.Write("(Nasdaq: CORR)") end if %> gained $2 3/4 to $21 3/4 on Schering's coattails, courtesy of being discussed by one of Schering-Plough's research vice presidents... INTEGRATED SILICON SOLUTION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISSI)") else Response.Write("(Nasdaq: ISSI)") end if %> recovered $1 3/8 to finish at $12 1/8 after saying its supply of wafers will not be hurt by a fire at a its Taiwanese fab... GST TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GST)") else Response.Write("(AMEX: GST)") end if %> gained $1 5/16 to $17 after CS First Boston initiated coverage of the interexchange carrier with a "buy" rating.
The debate over the future of E*TRADE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> seems to hinge on precisely how investors characterize its business. CEO Christos Cotsakos claims that E*Trade is a "technology company that uses brokerage as content." However, looking at how the company has made its money thus far -- arguably the best way of knowing what business you're in -- it's simply an online brokerage firm. E*Trade took it on the chin again today, losing $5 5/16 to $34 as competitors Fidelity Brokerage Services and QUICK & REILLY GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BQR)") else Response.Write("(NYSE: BQR)") end if %> both reduced their "best" online per-trade price to $14.95 and now match E*Trade's best offer. AMERITRADE HOLDING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMTD)") else Response.Write("(Nasdaq: AMTD)") end if %> trumped the rest with an $8 "per" offer. Can E*Trade's brand name transcend the price-conscious nature of its business? The jury may be out, but here's the scoop on its valuation.
ALTRIS SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALTS)") else Response.Write("(Nasdaq: ALTS)") end if %> dropped $2 7/8 to $5 1/16 after announcing that it expects to report a net loss of approximately $2.5 million or $0.26 per share (versus estimates of positive $0.06 per share) for the third quarter on revenues of about $5.9 million. The loss includes a charge of $1.1 million for potential bad debt -- $650,000 relates to a receivable from a value-added reseller (VAR) where collection appears doubtful, and an additional $450,000 increase in allowance for doubtful accounts. Information technology managers are under constant pressure to increase organization-wide productivity, and document management has emerged as an increasingly viable solution. However, the segment has numerous operators and competition has hurt profits, as evidenced by the recent shortfall at rival VERITY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTY)") else Response.Write("(Nasdaq: VRTY)") end if %> and market share leader OPEN TEXT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OTEXF)") else Response.Write("(Nasdaq: OTEXF)") end if %>.
QUICK CUTS: Manufacturer of fine papers, packaging, pulp and forest products DOMTAR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DTC)") else Response.Write("(NYSE: DTC)") end if %> fell $7/8 to $8 3/8 as the company completed the sale of its Beauharnois, Quebec security and specialty fine papers mill to Spexel Inc... Publishing group READERS DIGEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDA)") else Response.Write("(NYSE: RDA)") end if %> slumped $2 15/16 to $28 1/8 after announcing that it would record a loss of $0.05 to $0.10 a share, before charges, for its first quarter. Class B shares <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDB)") else Response.Write("(NYSE: RDB)") end if %> also fell $2 3/4 to $26 3/4... Lehman Brothers lowered its rating on higher education company DEVRY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DV)") else Response.Write("(NYSE: DV)") end if %> to "outperform" from "buy." The bad report card hurt shares $2 15/16 to $29... U.S.-based miner COEUR D'ALENE MINES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDE)") else Response.Write("(NYSE: CDE)") end if %> dropped $1 5/16 to $14 3/16 after selling its 14.9% stake of Eagle Mining, apparently accepting a take-out price that investors didn't like.
OREGON STEEL MILLS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OS)") else Response.Write("(NYSE: OS)") end if %> lost another $1 3/4 to $24 3/4 after reporting that union workers rejected a contract offer and went on strike at its CF&I Steel LP's steel mill in Pueblo, Colorado... Prudential Securities lowered its rating on shares of SWIFT ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFY)") else Response.Write("(NYSE: SFY)") end if %> to "hold" from "buy," hurting the stock $1 15/16 to $28 1/2... MERCURY AIR GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MAX)") else Response.Write("(AMEX: MAX)") end if %> lost $9/16 to $5 13/16 after announcing that bankrupt WESTERN PACIFIC AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WPAC)") else Response.Write("(Nasdaq: WPAC)") end if %> was a "major customer" accounting for 11% of Mercury's consolidated revenue and 15% of its revenues from fuel sales and services for fiscal 1997.. UNIMARK GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UNMG)") else Response.Write("(Nasdaq: UNMG)") end if %> fell $1 7/32 to $6 after Rodman & Renshaw downgraded the tropical fruit company to "neutral" from "buy" and reduced its 1997 and 1998 earnings expectations... Real-time information management systems provider CELLULAR TECHNICAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTSC)") else Response.Write("(Nasdaq: CTSC)") end if %> dropped $5/8 to $5 1/16 after announcing that revenues and earnings for the third quarter will fall significantly below analysts' expectations.
Financial planning and tax preparation company GILMAN & CIOCIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GTAX)") else Response.Write("(Nasdaq: GTAX)") end if %> lost $11/16 to $5 3/4 after posting 4Q EPS of $0.18... Diabetes specialist AMERICAN HEALTHCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMHC)") else Response.Write("(Nasdaq: AMHC)") end if %> fell $1 1/4 to $11 3/4 after posting a 4Q loss of $0.01 per share, versus estimates of $0.09 a share... Visual development tools company TEMPLATE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMPL)") else Response.Write("(Nasdaq: TMPL)") end if %> lost $1 3/8 to $13 1/8 onj posting 3Q EPS of $0.09, missing expectations of $0.11.... Shares of connectivity and application software company WALL DATA (Nasdaq WALL) dropped $1 5/8 to $17 1/2 after the company said it expects to report earnings of between breakeven and a loss of $0.05 per share for its third quarter... Physician practice management company FPA MEDICAL MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> lost $3 to $36 7/8 after McDonald & Co. reduced the firm to a "hold" from an "aggressive buy."
FOOL ON THE HILL
An Investment Opinion by Jim Surowiecki
Alpha Inside? Digital and Intel Really Are Talking About a Trade
Investors snapped up shares of DIGITAL EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> yesterday after reports were confirmed that Digital has entered into talks with microprocessor giant INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> to trade the technology for its high-performance Alpha chip for more than $1.5 billion. Although talks are still in the preliminary stage, the prospect that Digital might abandon its heretofore futile quest to dislodge Intel's control of the market for midrange processors sent Digital's stock up 8.9% yesterday, and several brokerage houses raised their "short-term" ratings on the stock.
The market's reaction suggests the degree to which Alpha has come to be seen as an impediment to Digital's efforts to reinvent itself. It also suggests how anxious investors are for Digital to fall in with the Wintel crowd and forget its attempt to win customers over to an alternative architecture. Ironically, though, Alpha was embraced by Digital CEO Robert Palmer as the centerpiece of his turnaround strategy. Earlier this year, in fact, Digital brought suit against Intel for allegedly stealing Alpha technology in order to build its Pentium Pro and then Pentium II line of processors. Digital insisted that Intel had stolen technologies that improved cache management, branch prediction, and simultaneous execution. Intel, in turn, countersued, claiming that Digital had failed to return documents, and also gave notice that it might not renew its contract to supply DEC with microprocessors when their 1997 contract expired.
While the lawsuit, which was announced without warning, was hardly a welcome gift for Intel, it was something of a backhanded compliment, since it made clear the degree to which Intel had been able to narrow the gap in quality between its processors and the Alpha. Staking Digital's future on Alpha required a technology that was so superior as to justify the difficulties inherent in adopting a new architecture. But the combination of Intel's stranglehold on the market and the dramatic improvements in speed and efficiency brought by the last two generations of Pentiums has meant that Digital's long-shot attempt at cracking the market became essentially a no-shot. In the last fiscal year, Intel shipped 65 million of its processors, while Digital shipped just 300,000 Alphas. The competitive situation for Digital will only get worse once Intel introduces Merced, a next-generation chip that is supposed to represent a qualitative improvement over the Pentiums.
The proposed deal would clearly help Intel in terms of shaking the lawsuit, though no one really anticipates a Digital victory. (A financial settlement, on the other hand, is a likely outcome.) At the same time, Intel might very well find something useful to poach from Alpha designs, and it would give it access to a small, but potentially lucrative, high-end market. The big winner, though, at least from one angle, would be Digital. In pure opportunity-cost terms, abandoning Alpha would free up the hundreds of millions of dollars that would have to be invested in the project in order to make the chip a meaningful competitor to Intel's products. Digital is currently sitting on $2 billion in cash, and doubling its reserves would certainly help, particularly at a time when the company is embarked on an ambitious share buyback program. Most importantly, a deal would send a signal that Palmer has given up on a project that everyone else regards as essentially quixotic.
Today, Reuters quoted an unnamed source as saying that Digital would never sell Alpha to Intel and that any deal would involve a leasing arrangement. The truth, though, is that it's hard to see what the meaningful difference between the two would be, save for the fact that Digital would likely get less money upfront in a leasing arrangement. Even if Digital were to sell Alpha, Intel would have to commit to manufacturing the chip for a number of years in order to service existing customers and allow Digital to make the transition to a purely Wintel-based product line. But if Intel were in charge of the fabricating plants for the chip -- the main one of which, in Hudson, Massachusetts, Digital has spent years trying to find a partner for -- it's hard to see how or why Digital would start selling Alphas independently after the lease expired.
The flip side of all the positive buzz, though, is that in the absence of Alpha it's hard to see exactly what Digital has to distinguish itself from the crowd. The company, which did $13 billion in sales last year, has a sizable business in Windows NT and UNIX workstations and servers, some based on Alpha and others on Pentium technology. It also offers personal computers, but its share of that market has been shrinking, and the company scrapped plans -- admittedly bad plans -- to spin off its Alta Vista search engine in July. In fact, Digital's new plan is to reinvent itself as a company that can "provide complete solutions," a sort of one-stop shop for service and support. Clearly, this approach allows DEC to trade on its name and its size, but as a real strategy for a return to consistent earnings growth, it seems questionable. Similarly, selling or licensing Alpha is almost certainly a necessary and correct short-term decision, particularly if Intel is willing to shell out as much for the technology as press reports suggest. But other than filling DEC's coffers, the deal tells us little about what Digital's future really looks like. At a time when the company's shares are trading at a P/E of more than 70, that is simply not good news.
10/09/97 (Thursday)
ECHLIN, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
(800) 683-1535 (code: refocus) -- replay through 10/17
10/09/97 (Thursday)
ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
(800) 475-6701 (code: 358559) -- replay through 10/17
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