DJIA: 7442.08 +60.41 (+0.82%) S&P 500: 914.62 +10.94 (+1.21%) Nasdaq: 1593.61 +23.20 (+1.48%) Phil. Gold/Silver 87.91 -2.55 (-2.82%) 30-Year Bond 102 31/32 -12/32 6.15% Yield
Fax broadcaster XPEDITE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XPED)") else Response.Write("(Nasdaq: XPED)") end if %> added $2 7/8 to $24
5/8 on announcing that it has received an unsolicited acquisition offer from
teleservices software company PREMIERE TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTEK)") else Response.Write("(Nasdaq: PTEK)") end if %>.
Premiere, which provides computer-telephony integration software and services
to telecom carriers such as WORLDCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %>, wants to grab
Xpedite's wide customer base. For its part, Premiere is developing software
to fax using the Internet to transmit data. That could either increase gross
margin or allow the company to pass on cost savings, theoretically expanding
demand for services and increasing absolute operating earnings. The acquisition
also makes sense for Premiere because of XPedite's established customer
relationships, to which Premier would market its expanded suite of services.
Owing to its lower cost of capital, Premiere holds the much stronger hand
vis-a-vis the pending debt-financed management-led buyout proposal for
Xpedite.
Mortgage banker FUND AMERICAN ENTERPRISES HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FFC)") else Response.Write("(NYSE: FFC)") end if %> jumped
$11 3/8 to $119 1/2 after announcing that it will conduct a Dutch auction
tender offer to buy back up to one million shares at prices from $105 to
$125 per share. At the average bidding price, the company will call in 14%
of its capitalization, using cash that it would otherwise be investing in
mortgages that are yielding less and less with the compression of the long
end of the bond yield curve. Fund American is currently overcapitalized,
so it can afford to draw down assets, returning those assets to shareholders
in the form of buybacks, by over $350 million and still remain liquid enough
to operate comfortably. Fund American has to be careful with that approach,
though, as investors have crushed REIT REDWOOD TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RWTI)") else Response.Write("(Nasdaq: RWTI)") end if %>
for just such a cautious stance.
QUICK TAKES: Venezuelan national telephone company
CANTV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VNT)") else Response.Write("(NYSE: VNT)") end if %> gained $6 5/8 to $43 3/4 after Smith Barney and
Morgan Stanley Dean Witter both upgraded their ratings on the company based
on the stock's recent price decline and their belief in the strong earnings
potential of the company... BT OFFICE PRODUCTS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTF)") else Response.Write("(NYSE: BTF)") end if %> rose $1 7/16 to $10 7/8 after entering into a strategic relationship
with Kinko's under which Kinko's will retail BT's products and BT will show
Kinko's the way to its large corporate accounts... Brazilian telecom company
TELEBRAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBR)") else Response.Write("(NYSE: TBR)") end if %> rose $10 to $101 on reporting nine-months' net
income of $2.2 billion... CADENCE DESIGN SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %> jumped
$5 to $53 1/4 after the semiconductor design automation software company
announced a $100 million contract with a "global electronics leader."
DAL-TILE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DTL)") else Response.Write("(NYSE: DTL)") end if %> gained $1 9/16 to $11 1/16 after
Morgan Stanley raised its rating on the maker of ceramic tile from "neutral"
all the way to "strong buy." Dal-Tile has been beset in recent quarters by
difficulties in assimilating an acquired company and with its information
systems... Property & casualty insurer GUARANTY NATIONAL CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNC)") else Response.Write("(NYSE: GNC)") end if %> added $1 9/16 to $11 1/16 after agreeing to merge with broadline
insurer ORION CAPITAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OC)") else Response.Write("(NYSE: OC)") end if %> via a $36 per share cash tender
offer for the 19% of Guaranty shares that Orion doesn't already own... ILC
TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ILCT)") else Response.Write("(Nasdaq: ILCT)") end if %> rose $2 1/2 to $14 1/4 after the maker of lighting
sources for applications such as semiconductor wafer lithography agreed to
merge with BEC GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EYE)") else Response.Write("(Nasdaq: EYE)") end if %>, a maker of similar products. BEC,
which also makes Bolle sunglasses, will exchange 4.36 of its shares for each
ILC share... STERIGENICS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STER)") else Response.Write("(Nasdaq: STER)") end if %> rose $3 1/4
to $22 1/2 on reporting a ðÆf
Machine vision company PERCEPTRON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRCP)") else Response.Write("(Nasdaq: PRCP)") end if %> was blinded
by investors today after announcing third quarter earnings and a possible
revenue shortfall in its fourth quarter. The stock fell roughly 20% in early
trading, but rallied somewhat to lose only $2 7/8 to $24 1/8 by the end of
the day. Perceptron reported Q3 EPS of $0.33, which was $0.03 shy of estimates.
It currently trades at 12.5x 1998 estimates of $1.89 per share. The company
reported that its single Asian operation would be impacted by the financial
condition of automaker Kia, which represents less than 2% of the company's
revenues. Perceptron also noted an order push-out in the company's Forest
Products segment, saying that "two large orders that were anticipated to
be received and delivered in the fourth quarter of 1997 are now expected
to be delivered in 1998." Perceptron's recovery from its steep drop early
in the day probably came about as a result of investors weighing the minimal
earnings impact oðÆf
DISCREET LOGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSLGF)") else Response.Write("(Nasdaq: DSLGF)") end if %>, a designer of software for creating
and editing film, was cut $2 7/16 to $19 9/16 after posting a Q1 loss of
$0.53 per share, which includes a charge for an R&D write-off related
to an acquisition. This prompted a BancAmerica Robertson Stephens downgrade
to "market outperform" from "buy" on concerns surrounding the mechanics of
Discrete's recent acquisitions and the costs of building an indirect sales
channel. The company has positioned itself as a beneficiary of the entertainment
industry's move to digital editing on computers versus using analog systems
where editors manipulate film and tape. Net income for the quarter without
the charge would have amounted to $0.19 per share versus estimates for $0.16.
The Canadian company's product portfolio is well rounded with strong brand
recognition in visual effects, editing, and production. Its products have
been used in such (yet to be released) films as Starship Troopers and
Titanic.
QUICK CUTS: POLYMER GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PGH)") else Response.Write("(NYSE: PGH)") end if %>, a
nonwoven and specialty polymer materials company, fell $2 1/4 to $9 1/2 after
it was downgraded to "market perform" and taken off the "recommended list"
at Donaldson, Lufkin & Jenrette... Eldercare company GENESIS HEALTH
VENTURES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GHV)") else Response.Write("(NYSE: GHV)") end if %> lost $2 13/16 to $24 1/2 as BT Alex. Brown cut its
rating on the company to "buy" from "strong buy." Competitors have been talking
lately about problems associated with prospective changes in Medicare
reimbursements and rules... TECH-SYM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSY)") else Response.Write("(NYSE: TSY)") end if %>, a maker of radio
frequency equipment and seismic survey gear, fell $2 3/8 to $31 3/4 after
reporting a loss of $0.24 per share from continuing operations... Jet engine
parts maker HEICO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HEI)") else Response.Write("(AMEX: HEI)") end if %> dropped $3 5/16 to $36 3/16 after
concerns that EPS growth would slow once Lufthansa Technik, a unit of Deutsche
Lufthansa, buys 20% of Heico's aerospace unit for $26 million.
BRAUN'S FASHIONS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BFCI)") else Response.Write("(Nasdaq: BFCI)") end if %> was cleaved for a $3 7/16 loss
to $8 5/8 after the Midwestern women's retailer announced that it expects
October's same-store sales increase to be similar to that of September's
1% rise and that it would not meet analyst expectations for the third quarter...
Healthcare industry outsourcer COHR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRI)") else Response.Write("(Nasdaq: CHRI)") end if %> fell $3 to
$10 1/2 on announcing that it expects to report a 14% year-over-year decline
in Q2 EPS because of lower revenues, charges for legal reserves, and an increase
in the company's share count... FPA MEDICAL MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %>
slipped $4 3/4 to $24 1/8 after being downgraded by Smith Barney to "outperform"
from "buy"... RF MONOLITHICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RFMI)") else Response.Write("(Nasdaq: RFMI)") end if %> was crushed $6 to $13
1/2 on rumors that the radio frequency components manufacturer was experiencing
problems with a large bar code equipment manufacturer due to some design
weakness in its HX/RX receiver/transmitter products.
Former Year 2000 problem remediation software star ZITEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZITL)") else Response.Write("(Nasdaq: ZITL)") end if %> was smeared for a $2 7/16 loss to $14 3/16 on announcing fourth quarter
revenues of $6.3 million and a net loss of $5.5 million, or a loss of $0.35
per share, before an extraordinary charge... BOSTON CHICKEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOST)") else Response.Write("(Nasdaq: BOST)") end if %> fell another $1 1/2 to $8 15/16 after Merrill Lynch, one of its main
investment bankers, lowered its rating on the company to "market underperform"
from "market perform" in light of revelations that the company will make
large changes to its business model and financial profile... PRESSTEK
INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRST)") else Response.Write("(Nasdaq: PRST)") end if %> fell $4 5/16 to $30 15/16 after announcing that printing
press giant Heidelberger Druckmaschinen AG has told the company that ordering
patterns will be more normal following a period of high backlogs... Railway
GENESEE & WYOMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNWR)") else Response.Write("(Nasdaq: GNWR)") end if %> was derailed $3 3/4 to $28 after
reporting Q3 EPS of $0.39 versus estimates of $0.43, citing that one-time
costs affðÆf
FOOL
ON THE HILL
An Investment Opinion by Randy
Befumo
Are Asset Management Stocks Attractive?
Asset managers are among the first companies to get pasted when stocks start
to retreat. Concerns about interruptions in the critical flow of assets to
manage cause many investors to sell first and repurchase when things look
safe. With shares of most of the major asset managers down at least 10% from
their highs only last week, this age-old pattern has remained intact for
this bout of market instability. Investors interested in accumulating shares
of an asset management firm may also want to key into another age-old pattern
that should remain intact as well -- normally these periodic downdrafts are
the best times to acquire shares in asset management companies.
One of the companies most wounded in the recent downturn has been UNITED
ASSET MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAM)") else Response.Write("(NYSE: UAM)") end if %>, off more than 12% from where it traded
three weeks ago. United Asset Management had the misfortune of reporting
a disappointing quarter on October 23 -- two days before Hong Kong's implosion
took North American markets down more than 7.0%. United Asset Management
reported earning $0.32 per share on a fully diluted basis, a penny shy of
estimates. Higher-than-expected expenses combined with higher-than-expected
shares on a fully diluted basis caused this negative earnings surprise.
United Asset Management is the 15th largest asset manager in the United States
with assets under management (AUM) currently totaling $207 billion. The company
operates through more than 50 subsidiaries, using an innovative,
acquisition-driven model. As many money management firms are privately owned
affairs too small to go public on their own, by allowing themselves to be
acquired by United Asset Management they gain instant liquidity as well as
the ability to draw from the resources of a much larger organization. Some
of the larger firms to take advantage of this include Pilgrim Baxter (home
of the PBHG funds), Provident Investment Counsel, and Barrow, Hanley, Mcwhinney
& Strauss.
United Asset Management's model has allowed the company to grow assets under
management at an annual rate of 20% over the past ten years, in line with
the mutual fund industry's overall 25.6% rate. Over the past five quarters,
asset growth has accelerated to 25.6%, a slight discount to the mutual fund
industry's 32.3% growth over that period. This asset growth is particularly
impressive given that United Asset Management's member firms have seen negative
net client cash flow over the period. Client cash flow has been negative
because United Asset Management's member firms run a bunch of pension plans
-- 45% of the current assets under management. As the retirement plan of
choice has become the defined contribution plan, United Asset Management
member firms haven't had the assets that they are paying out to old pensioners
replaced by the retirement savings of new pensioners.
This negative client cash flow is the major negative hanging over the stock.
Five out of six analysts covering the stock rate it "hold," "neutral," or
"underperform" because of this trend. The fact that the company trades at
18 times after-tax earnings doesn't help either, as most asset managers including
FRANKLIN RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEN)") else Response.Write("(NYSE: BEN)") end if %> and T. ROWE PRICE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TROW)") else Response.Write("(Nasdaq: TROW)") end if %>
trade at around 18 to 22 times earnings. The stand-out in the group of analysts
is James P. Hanbury of Schroder Wertheim, who rates the stock an "outperform."
Hanbury cites the company's long-term historical growth in assets, revenues,
operating cash flow, and earnings per share, as well as a reduction in the
net client outflows as the reason for his positive stance.
Hanbury may have hit on the right answer with United Asset Management. Operating
cash flow is particularly impressive and is extremely distorted because of
the company's acquisition-based strategy. Because United Asset Management
is acquiring money management firms with very little in the way of plant,
property & equipment, most of the purchase price has to be added to the
balance sheet as "goodwill," the difference between the price paid and the
book value of the assets acquired. This goodwill needs to be amortized off
the balance sheet over a fixed period, which causes substantial non-cash
deductions to the company's stated earnings. Last quarter, amortization was
more than after-tax earnings! This is important because this amortization
money does not disappear, but can actually be used by the company just like
regular earnings. On a cash flow basis, United Asset Management is among
the cheapest in the asset management group, trading at 8.5 times earnings
before interest, taxes, amorðÆf
This operating cash flow finances two more factors investors should add to
Hanbury's list -- dividends and share repurchases. Because the investment
advisors that the firm has purchased own a good portion of the company,
management is highly motivated to do things that enhance shareholder return.
The company has generously used its massive operating cash flow to finance
22 dividend increases since the company came public 41 quarters ago. This
has resulted in dividend increases of 27% per year over the past eleven years,
meaning that shareholders who were in on the initial public offering at $9.00
per share are getting an effective yield of 8.9% from their initial investment.
United Asset Management has also repurchased $87 million worth of stock since
the beginning of fiscal 1996, or about 4% of its shares.
United Asset Management has been reducing the net client outflow by beefing
up its line of products. A key example of this is assets under management
at the PBHG funds group, up to $21 billion in the most recent quarter from
only $15.5 billion a year ago. United Asset Management has given PBHG the
resources to expand its product line, hire a high-powered Chief Operating
Officer, and build the company a new shareholder services center that other
United Asset Management affiliates can use. With most of the asset management
universe valued at 2% or more of assets under management, the fact that even
counting debt United Asset Management is valued at 1.25% assets under management
with a fairly low EBITDA multiple suggests that investors might find some
value here -- particularly if the stock goes lower in the coming weeks.
[For those who want to learn more about asset managers in general, this week's
Industry Snapshot penned by yours truly focuses on the industry and six key
players. To order this single issue of
Snapshot,
call 1-888-665-3665. To learn more about Industry Snapshot, check out the
product listing in FoolMart.]
FORCENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FEN)") else Response.Write("(NYSE: FEN)") end if %>
(800) 411-5828 (code: 362389) -- replay through 11/3
(612) 321-9419 (code: 362389) -- replay for international callers
BUSINESS OBJECTS ADS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOBJY)") else Response.Write("(Nasdaq: BOBJY)") end if %>
(800) 633-8284 (code: 3195088) -- replay through 11/3
MORROW SNOWBOARDS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRRW)") else Response.Write("(Nasdaq: MRRW)") end if %>
(402) 220-4249 -- replay through 11/4
THIS WEEK'S CONFERENCE CALL SYNOPSES
ATLAS AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLS)") else Response.Write("(Nasdaq: ATLS)") end if %>
Call
PRIME MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMSI)") else Response.Write("(Nasdaq: PMSI)") end if %>
Call
WE
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Every day, News writers Dale Wettlaufer and Randy Befumo engage in an impromptu discussion about the stories they find most compelling from the day's news, adding color, fresh commentary and the occasional wisecrack for your listening enjoyment. Check it all out in the Motley Fool's Evening Report on RealAudio Produced by partner AudioNet.
Randy Befumo (TMF Templr), Fool
One
Dale Wettlaufer (TMF Ralegh), Fool
Two
Alex Schay (TMF Nexus6), Fool
Three
Contributing Writers
Brian Bauer(TMF Hoops), Fool Four
Editing