ADVANTA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADVNA)") else Response.Write("(Nasdaq: ADVNA)") end if %> jumped $3 7/8 to $36 3/4 after industry newspaper American Banker reported that FLEET FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLT)") else Response.Write("(NYSE: FLT)") end if %> is finishing up a deal to acquire Advanta. Fleet Financial recently signed a deal to acquire QUICK & REILLY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BQR)") else Response.Write("(NYSE: BQR)") end if %>. While Advanta's stock has certainly come a long way from the low $20 range reached earlier this year, it's still trading under two times book value. This is about half the level at which credit card issuer CAPITAL ONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> is trading and a little over one-third the price/book ratio at which BANC ONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %> valued credit card issuer First USA earlier this year when it acquired that company.With net cash per share of $7.22 (cash minus debt) on the books -- and few companies in the industry carry net cash -- Advanta is very liquid and well reserved for loan losses. A deal at a premium would not be a surprising announcement considering the profitability of credit card issuers and the opportunity for an acquiring bank to cross-market products. It would be surprising to see Fleet do the deal, though, considering it's in the middle of its Quick & Reilly acquisition and considering its cost of equity capital is higher than its banking industry peers at the moment. For a company carrying a higher P/E and thus a lower cost of equity capital, the deal makes more sense.
Retailers began weighing in with September same-store sales reports today. Among the winners, SAKS HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKS)") else Response.Write("(NYSE: SKS)") end if %> rose $1 5/8 to $24, after the retailer reported a 5% gain in same-store sales for the five weeks ended on October 5. Including a reworked Houston location, same-store sales increased 7%. Strongest among its units were full-line stores and catalog operations while Off 5th stores reported a decline in same-store sales. Home improvements retailer LOWES COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOW)") else Response.Write("(NYSE: LOW)") end if %> added $1 5/8 to $39 1/2 on reporting an 18% increase in September revenues and a 2% increase in same-store sales for the month. That was good enough for Goldman Sachs to add the shares to its "recommended" list.
QUICK TAKES: Solid waste services and engineering firm EMCON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCON)") else Response.Write("(Nasdaq: MCON)") end if %> rose $1 1/4 to $6 5/8 on announcing a follow-on order for three proprietary leachate evaporation systems from a Washington State waste facility... BON-TON STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BONT)") else Response.Write("(Nasdaq: BONT)") end if %> gained $1 7/8 to $14 after the Northeast and Mid-Atlantic department store company reported a 10.2% increase in September same-store sales... EXCITE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> gained $5 5/8 to $34 3/8 after the web organizer and search engine company today reported 10 new marketing deals worth $25 million with companies such as Auto-By-Tel and CDnow... Wireless telecom equipment power amplifier manufacturer MICROWAVE POWER DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MPDI)") else Response.Write("(Nasdaq: MPDI)") end if %> rose $1 5/8 to $10 3/4 on announcing a $6.6 million order from wireless giant LUCENT TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %>... BEN & JERRY'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BJICA)") else Response.Write("(Nasdaq: BJICA)") end if %> picked up $1 7/8 to $14 1/2 courtesy of Josephthal Lyon, which started coverage of the premium ice cream company with a "buy" rating.
TAIWAN SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSM)") else Response.Write("(NYSE: TSM)") end if %> gained $3 5/8 to $29 3/4 after listing on the New York Stock Exchange... Oil services company TRANSOCEAN OFFSHORE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIG)") else Response.Write("(NYSE: RIG)") end if %> rose $5 7/16 to $57 7/8 on announcing a lease of a harsh weather jackup rig... BJ SERVICES CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BJS)") else Response.Write("(NYSE: BJS)") end if %> added $4 11/16 to $82 1/4 after Rauscher Pierce Refesnes raised its 1998 estimate on the firm.
Semiconductor fabrication equipment company TRIKON TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRKN)") else Response.Write("(Nasdaq: TRKN)") end if %> lost $2 25/32 to $6 1/32 after the company said it will report a loss for the quarter of $0.70 to $0.75 per share on revenues of $12.7 million. First Call lists a single estimate of a $0.28 per-share loss for the quarter. The company said it will cut 20% of its workforce, that its bank has blocked interest payments on its unsecured convertible debentures, and that it is looking at strategic alternatives with the help of Deutsche Morgan Grenfell Technology Group. The company makes etch and deposition equipment that is used for three of the four major processing steps in the manufacture of a semiconductor. A look at the capital spending plans of some of its major customers such as Hyundai and Siemens (19% and 12% of total revenue for FY 1996), which have been under pressure of late, is a strong indicator of the eventual trickle down effect upon Trikon.
Shares of billing data collections firm AXIOM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AXIM)") else Response.Write("(Nasdaq: AXIM)") end if %> fell $6 to $9 1/8 after the company warned investors that its fiscal fourth quarter revenues and earnings will fall significantly below analysts' expectations, primarily due to "reduced and delayed orders." The company forecast EPS for the quarter of $0.08 to $0.13 versus expectations of $0.43. The company also warned that revenue and net income for the fiscal year would be sharply lower than expected with an anticipated net loss of $0.22 to $0.29 a share. Axiom was rewarded with a downgrade from Lehman, to "neutral" from "buy," as well as a downgrade from J.P. Morgan to "market performer" from "buy." Axiom trades at just under 10 times cash flow and has steadily improved its operating margins from a five-year average in negative territory to around 10% for the trailing twelve months. This is a critical time for the company as it begins to expand its menu of offerings to include products for the wireless switch arena.
QUICK CUTS: HAEMONETICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAE)") else Response.Write("(NYSE: HAE)") end if %> was bled for a $2 7/16 loss to $16 15/16 after the blood processing equipment company said it will report Q2 EPS of $0.14 to $0.16, below estimates of $0.26 a share, because of delays in shipments to China... Women's clothier TALBOTS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLB)") else Response.Write("(NYSE: TLB)") end if %> was marked down $1 13/16 to $25 5/16 after saying it expects its second half results to be "well below" those of last year's second half if its unfavorable sales trends continued... Aircraft maintenance company WHITEHALL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHT)") else Response.Write("(NYSE: WHT)") end if %> descended $1 1/8 to $18 3/8 on stating that it will report a third quarter loss of about $8.2 million on lower revenues... Bicycle suspension manufacturer ROCKSHOX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RSHX)") else Response.Write("(Nasdaq: RSHX)") end if %> wiped out today, losing $3 1/8 to $11 1/8 on pre-announcing flat second quarter revenues and expectations for EPS of $0.24 to $0.26, down from $0.28 last year and almost 22% below estimates.
After issuing a six-month report, electro-diagnostic systems company BIO-LOGIC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BLSC)") else Response.Write("(Nasdaq: BLSC)") end if %> fell $1 3/8 to $7 3/4 on saying that it expects to incur higher research and development expenses in fiscal 1998 compared with a year ago... NASH FINCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAFC)") else Response.Write("(Nasdaq: NAFC)") end if %> dropped $3 to $20 3/4 after the giant food distributor said it will miss the Q3 mean earnings estimate of $0.62 a share because of higher-than-expected costs related to a June acquisition, poor results at a produce marketing unit, and costs associated with implementing an information system... Value-priced apparel retailer GOODYS FAMILY CLOTHING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GDYS)") else Response.Write("(Nasdaq: GDYS)") end if %> lost $3 3/8 to $23 3/4 on reporting a 4.5% drop in September same-store sales... Erectile dysfunction treatment company VIVUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %> slipped $4 1/2 to $35 3/4 after reporting 3Q EPS of $0.31, missing estimates of $0.32... Footwear and accessories company SHOE CARNIVAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCVL)") else Response.Write("(Nasdaq: SCVL)") end if %> fell $7/8 to $7 3/4 after announcing same-store sales for the five-week period ended October 4 were down 1.65%... ZYGO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZIGO)") else Response.Write("(Nasdaq: ZIGO)") end if %> fell $1 7/8 to $27 3/4 after the manufacturer of precision measurement equipment called off a merger with Digital Instruments that had been announced in late July.
FOOL ON THE HILL
An Investment Opinion by Randy Befumo
Rational Software is Senselessly Shrinking Out of the Mid-Cap Arena
RATIONAL SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RATL)") else Response.Write("(Nasdaq: RATL)") end if %> is a company well on its way to becoming a small-cap. The maker of software development tools has had a rough year, plunging from its annual zenith of $44 1/4 to its current nadir of $9 15/16, down $1 9/16 today. Although the company announced its bad news yesterday, with today's volume at more than 15 times normal levels, apparently some investors are just getting the message. Rational slumped $3 yesterday before being halted for news pending. The company said afterwards that earnings and revenues for fiscal 1998 and 1999 would stink. Unfortunately for individual investors, a brokerage analyst had already downgraded the shares based on this news before the halt for news pending, giving institutions and hyperactive traders an opportunity to jump ship.
The company blames its woes on the "increasingly competitive" market for its products, with major players like ORACLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> pushing hard into the development tools space. Rational warned that revenues for the remainder of fiscal 1998 and all of fiscal 1999 will be in line with or slightly below current estimates due to the unexpected competition. Earnings growth will fall below earlier guidance as the company ramps up spending sales, marketing, research and development in order to keep up. With management on the defense, investors have apparently lost confidence in the company's ability to deal with this competition.
Saddled with the costs of integrating former rival Pure Atria, the need to dramatically increase spending on operations could not have come at a worse time. The Pure Atria acquisition was supposed to give Rational a majority market share in the tools business and help reduce its overall operating costs. Instead, management suddenly has found itself fighting a two-front war -- fending off emerging competition and trying to craft a plan to integrate all of the company's assets. Pure Atria itself was the product of a major merger earlier in the year, compounding the problems that Rational now faces "rationalizing" all of its products.
The Street has certainly had an about face on the company. Robert M. Cohen analyst Keith Bossey speculated yesterday that Rational "has yet to grasp its recent acquisitions and how they fit into the competitive software tools arena" in a published note. This is a sharp divergence from his September 18th note where he put a price target of $37 on the shares and stated, "As the company meets or beats expectations, and the component market develops, valuations should expand to industry norms at least." In less than a month, Bossey has totally given up on Rational. Given the spectacular fall over the last nine months, most other investors have given up as well.
Is there possibly a silver lining here? International Data Corp. has Rational Software as the market share leader in Automated Software Quality (ASQ) tools and tools that support object-oriented and component-based software development based on 1996 revenues. With Oracle heating up to take advantage of Rational's current weakness, this market share might not mean a heck of a lot. Hambrecht & Quist has cut 1998 EPS estimates on Rational to $0.43 and 1999 estimates to $0.50, indicating that the shares could actually still be overvalued even at around $10, or about 20 times 1999 earnings. Anyone who knows the development tools business is certainly welcome to explore the company, but an investor who does not know this company should consider moving on to greener pastures -- particularly given that analysts and not investors have the inside scoop from management.
FORD MOTOR CREDIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %>
(703) 736-7363 -- replay on 10/10 @ 2:00 PM ET
ORACLE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %>
402-220-0103 -- replay through 10/10 @ 5:00 pm EDT
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
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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Randy Befumo (TMF Templr), a Fool
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Heroes & Goats
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