The Motley Fool: The Evening News

AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> surged $6 1/16 to $84 7/8 in anticipation that first quarter earnings to be released after market close tomorrow will exceed expectations. The 18 analysts polled by First Call are expecting around $0.12 EPS, but the reality remains that it will be very difficult to assess what America Online can earn in the fourth quarter of its flat-fee, advertising-driven model. Even questions as straightforward as what gross margins will be are difficult to answer given the lack of operating history with this particular model. Although apparently some traders are willing to make a bet today on what the model will look like, investors remain eager to see what sort of numbers the company will report before changing their investment position or committing money. All this cautionary stuff said, should America Online get any kind of leverage on its fixed costs, operating margins could potentially explode to the level of television broadcasters, radio stations, and newspaper chains.

CONSOLIDATED STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNS)") else Response.Write("(NYSE: CNS)") end if %> rose $4 5/16 to $45 7/16 after announcing that it would acquire MAC FRUGAL'S BARGAINS CLOSE-OUTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MFI)") else Response.Write("(NYSE: MFI)") end if %>, which climbed $2 1/3 1/4 to $40 13/16. Consolidated is a major close-out vendor that operates Big Lots, Odd Lots, All-for-One, and iTZADEAL! stores. Consolidated buys at steep discounts odd lots of products that conventional retailers cannot sell and then hawks them to customers through its own discount stores. The company bought Kay-Bee Toys from Melville last year, turning it into a close-out vendor for toys, and since then Consolidated has exploded, rising 70% over the past 12 months. This stock swap deal for Mac Frugal's values the company at only 1.2 times sales, so it is no surprise that it will be accretive to earnings by around 10%. If this deal is 10% accretive, CNS will make around $2.16 in fiscal 1999, meaning it trades at 20.4 times fiscal 99 earnings while growing at 31%. Mac Frugal's 9.89% operating margins are much higher than Consolidated's 5.48%, leaving some room for overall margin improvement for the combined company. With Mac Frugal's essentially becoming the close-out clothing wing of the Consolidated Stores empire, Consolidated stands a good chance of continuing its 25% EPS growth over the next few years.

Global publisher of science and medical texts WAVERLY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WAVR)") else Response.Write("(Nasdaq: WAVR)") end if %> soared $12 3/4 to $40 1/8 after the company's Board of Directors announced that it was seeking to sell the company, jumping on the educational publishing industry's consolidation trend. The one analyst following the company has a fiscal 1998 earnings estimate of $0.95 per share; however, the company has a lot of amortization in those earnings due to acquisitions it has made in the past few months. Looking at net income plus that non-cash amortization less the capital expenditures the company has made -- a quick proxy for free cash flow -- the current valuation makes a lot more sense. Waverly made $0.61 per share in after-tax net income plus amortization less cap ex in the first six months of the fiscal year, almost twice the $0.34 per share the company reported in net earnings. Waverly also has invested nearly a billion dollars so far this year in electronic publishing. As it appears that Waverly's price now fully reflects any potential takeover premium, investors might want to poke around for other publishers with high amortization costs that are not valued at this level.

QUICK TAKES: Ratings & Recommendations: COLUMBIA/HCA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> rose $1 1/8 to $29 3/4 after Bear Stearns analyst Al Rice raised the company to "buy" from "accumulate"... Coupon and promotional materials publisher VALASSIS COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VCI)") else Response.Write("(NYSE: VCI)") end if %> added $1 7/16 to $31 3/8 after being named a Focus One stock of the week by Merrill Lynch analyst Lauren Fine, with a 12-month price target of $38... Motion control product maker PARKER HANNIFIN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PH)") else Response.Write("(NYSE: PH)") end if %> jumped $1 1/8 to $43 after getting a "long-term buy" rating from James McCann of Merrill Lynch... COCA-COLA FEMSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KOF)") else Response.Write("(NYSE: KOF)") end if %> rose $2 3/16 to $50 7/8 after getting a "buy" rating from Annette Frangui of J.P. Morgan and a 12-month price target of $60... Radio station owner CHANCELLOR MEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMFM)") else Response.Write("(Nasdaq: AMFM)") end if %> gained $6 1/16 to $65 1/16 on better-than-expected earnings, prompting a move to Goldman Sachs "Recommended List" and a 12-month price target of $80.

Aluminum refiner ALUMAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMX)") else Response.Write("(NYSE: AMX)") end if %> rose $1 1/8 to $34 5/8 after MSDW & Co. analyst R. Wayne Atwell went to "outperform," citing a 12-month price target of $41... PHILIPS ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %> climbed $2 3/16 to $80 7/8 on a recommendation from Charles Elliott of Merrill Lynch... BOSTON SCIENTIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> jumped $4 15/16 to $53 3/8 after being listed as new "buy" at USB Securities... ASM LITHOGRAPHY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> rose $4 1/2 to $83 5/8 after a "strong buy" from MSDW & Co... Gruntal & Co. pushed UNITED STATES FILTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USF)") else Response.Write("(NYSE: USF)") end if %> up $1 5/16 to $34 15/16 with a "strong buy" rating... JACKSON HEWLITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JTAX)") else Response.Write("(Nasdaq: JTAX)") end if %> powered ahead $4 1/2 to $53 after the mention in Business Week's Hot Stocks column last week.

QUICK TAKES -- Earnings reports: CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> leapt $2 3/16 to $85 7/16 after beating consensus EPS estimates of $0.58 by a penny last night and announcing a three-for-two split... Ceramic electronic capacitor maker AMERICAN TECHNICAL CERAMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMK)") else Response.Write("(Nasdaq: AMK)") end if %> rose $1 1/2 to $18 1/2 after reporting earnings of $0.27 per share versus $0.09 last year... Receivables management teleservicer NCO GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NCOG)") else Response.Write("(Nasdaq: NCOG)") end if %> jumped $1 1/4 to $38 1/2 after earning $0.23 per share versus $0.12 per share a year ago, announcing a three-for-two split, and promising to cut 5% of its workforce... Machine vision system developer OSI SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OSIS)") else Response.Write("(Nasdaq: OSIS)") end if %> rose $1 3/16 to $14 1/2 after reporting earnings of $0.22 EPS, three cents better than expectations... Israeli Year 2000 software provider CRYSTAL SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRYSF)") else Response.Write("(Nasdaq: CRYSF)") end if %> rose $1 1/4 to $21 3/8 after reporting EPS of $0.13.

SUNRISE ASSISTED LIVING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNRZ)") else Response.Write("(Nasdaq: SNRZ)") end if %> jumped $3 1/8 to $39 1/2 when it reported earnings of $0.07 per share, beating estimates of $0.05... QUALCOMM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QCOM)") else Response.Write("(Nasdaq: QCOM)") end if %> rose $2 1/4 to $65 1/8 on expectations for its upcoming earnings release... Athletic shoe and apparel maker FILA HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> rose $1 3/4 to $26 9/16 after the company reported earning $0.64 per share versus estimates of $0.44... REHABCARE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RHBC)") else Response.Write("(Nasdaq: RHBC)") end if %> rose $2 1/8 to $30 on reporting EPS of $0.36 versus $0.23 in last year's quarter... REFAC TECH DEVELOPMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: REF)") else Response.Write("(NYSE: REF)") end if %> rose $2 1/8 to $16 after earning $0.57 per share versus $0.17 per share.

QUICK TAKES -- Mergers & Financing: Fila competitor CONVERSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVE)") else Response.Write("(NYSE: CVE)") end if %> jumped $1 1/8 to $7 1/16 as fears of a potential bankruptcy abated... ITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> rose $1 3/8 to $80 1/4 after Starwood Lodging reportedly started to consider offering more money for the "in play" lodging and gaming concern... SEVENTH LEVEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEVL)") else Response.Write("(Nasdaq: SEVL)") end if %> exploded $1 1/16 to $3 1/8 after the software company announced it was in merger talks... VICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VICL)") else Response.Write("(Nasdaq: VICL)") end if %> rose $15/16 to $15 3/4 after Merck purchased $5 million in stock and promised up to $18 million in milestone payments as the company developed its "naked" DNA technology... FISERV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FISV)") else Response.Write("(Nasdaq: FISV)") end if %> rose $2 5/8 to $46 3/8 after it bought CUSA TECHNOLOGY (OTC: CSAT) for $1.35 a share... KIMCO REALTY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KIM)") else Response.Write("(NYSE: KIM)") end if %> jumped $1 1/4 to $33 1/4 after the company said it would start a new real estate investment trust (REIT) called Kimco AutoFund specializing in automobile dealerships property... EXPEDITE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XPED)") else Response.Write("(Nasdaq: XPED)") end if %> rose $2 3/8 to $27 1/2 on the buyout offer from PREMIERE TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTEK)") else Response.Write("(Nasdaq: PTEK)") end if %> for $30 a share in stock... RYKOFF-SEXTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RYK)") else Response.Write("(Nasdaq: RYK)") end if %> rose $1 7/8 to $23 after announcing revised terms in its pending merger with JP FOODSERVICE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPF)") else Response.Write("(NYSE: JPF)") end if %>.

QUICK TAKES -- Miscellaneous & IPOs: APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> rose $1 1/16 to $38 7/16 after reporting that a recent order pick-up put it on track for $10 billion in revenues by the year 2002 ... WESTERN ATLAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAI)") else Response.Write("(NYSE: WAI)") end if %> declined comment on stock activity, as its shares rose $7 1/16 to $79 1/8... FOCUS ENHANCEMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FCSE)") else Response.Write("(Nasdaq: FCSE)") end if %> added $13/16 to $5 1/2 after being hit by SOES bandits yesterday due to a bad quote... SANDISK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNDK)") else Response.Write("(Nasdaq: SNDK)") end if %> rose $1 to $29 after it and Siemens AG developed a new chip for cellular phones, according to the Wall Street Journal... PROXIM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PROX)") else Response.Write("(Nasdaq: PROX)") end if %> rose $2 5/8 to $13 after reporting yesterday that it had developed a wireless local area network... EXCEL SWITCHING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XLSW)") else Response.Write("(Nasdaq: XLSW)") end if %> rose $3 1/2 to $24 1/2 after offering 4.5 million shares in an initial public offering... Medical instrument maker YOUNG INNOVATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YDNT)") else Response.Write("(Nasdaq: YDNT)") end if %> rose $1 7/8 to $13 7/8 after offering 2 million shares to the public.

Investors betting on COLONIAL DOWNS HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDWN)") else Response.Write("(Nasdaq: CDWN)") end if %> were disappointed today as the Virginia horse racing enterprise was stampeded $2 1/8 to $5 1/8. Voters in three Virginia cities (Fredericksburg, Martinsville and Roanoke) all rejected referenda that would have allowed pari-mutuel betting facilities within their borders, which is a key component of Colonial Down's expansion strategy. The company's future growth is dependent upon its ability to open "satellite wagering facilities" that are patched into events at its track in rural New Kent County, Virginia, as well as other events around the country. The company's satellite betting facilities were expected to generate pretax operating profits between $1.2 million and $2.5 million per year, per facility. With Colonial Downs sporting a pre-tax operating profit run-rate of $1.58 million (based upon $0.395 million Q2 operating earnings), this growth is much needed. Soon-to-be-public Virginia investment banker Friedman Billings Ramsey & Co. downgraded Colonial Downs to "hold" from "buy" as a result of the voting, and cut its 1998 earnings estimate to $0.38 a share from $0.75. Colonial Downs currently trades at 13.3x this estimate.

DAISYTEK INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DZTK)") else Response.Write("(Nasdaq: DZTK)") end if %>, a distributor of computer and office automation supplies, dropped $4 to $37 after reporting Q2 EPS of $0.54, which actually beat estimates by a penny. The story here is that the office supplies wholesaler lost one of its largest customers, Sam's Wholesale Club, a unit of WAL MART STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %>. Apparently, Daisytek decided not to match "an aggressively low bid by a competitor for the business" at Sam's, and commented that if it had done so it would have experienced "substantial operating profit loss" on the items in question. In a conference call this morning (according to Bloomberg News) the company stated that the business from Sam's accounted for approximately $40 million in revenue a year, translating into an anticipated loss of about $0.02 per share for the upcoming quarter and might extend into future quarters if the income is not offset by gains in other accounts. Despite this, a 10% correction in a company that is anticipated to lose 3% of its earnings (after having returned 60% EPS growth since inception in early 1995) deserves a closer look.

QUICK CUTS: COLE NATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNJ)") else Response.Write("(NYSE: CNJ)") end if %>, operator of Pearle Vision, Gift Centers, and Things Remembered, lost $6 1/8 to $37 3/8 after forecasting Q3 EPS between $0.21 and $0.23 versus estimates of $0.26... Vertically integrated property and casualty holding company GAINSCO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNA)") else Response.Write("(NYSE: GNA)") end if %> lost $15/16 to $8 1/2 after reporting Q3 EPS of $0.07 versus estimates for $0.21. The third quarter results include a one-time claim reserve adjustment of $2.6 million, or $.08 per share... METRIKA SYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MKA)") else Response.Write("(AMEX: MKA)") end if %> fell $1 1/8 to $14 3/8 after the high-speed process optimization systems company filed a 424B with the SEC that notified investors of a 967,828 share offering in the works... TELEDATA COMMUNICATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLDCF)") else Response.Write("(Nasdaq: TLDCF)") end if %>, a maker hubs and multiplexers for telephone networks, lost $7 to $2 1/2 after BancAmerica Robertson Stephens cut its rating on the company to "long-term attractive" from "buy," citing "decelerating top line and earnings growth, as well as increasing sales exposure in the Asia Pacific region.''

SONIC SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNIC)") else Response.Write("(Nasdaq: SNIC)") end if %>, maker of multimedia workstations and other tools to assist audio and multimedia professionals in preparing music, video, and film graphics, fell $1 1/8 to $7 3/8 after reporting a Q2 loss of $0.19 per share, missing estimates of $0.01... GUILFORD PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GLFD)") else Response.Write("(Nasdaq: GLFD)") end if %> lost $3 to $22 7/8 after Piper Jaffray cut the company's 1997 earnings estimates to a loss of $0.63 per share from a loss of $0.41... Specialty coffee roaster GREEN MOUNTAIN COFFEE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GMCR)") else Response.Write("(Nasdaq: GMCR)") end if %> was roasted $1 1/8 to $8 3/4 after reporting that it expects earnings for its upcoming quarter to be approximately $0.01 per share -- estimates are for $0.10... Transmission, interface, and network products company OPTELECOM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OPTC)") else Response.Write("(Nasdaq: OPTC)") end if %> fell $1 to $16 after reporting Q3 EPS of $0.28, even with the prior year period.

Stock prices can be deceiving. Any investor who has found her way to this column knows that a $10 stock isn't necessarily or even probably 10 times cheaper than another stock selling for $100. Yet, investors caught up in a good story on a low-priced stock often don't run the basic valuations that would reinforce such knowledge. The low price alone seems to promise massive capital appreciation.

One of the best stories of late has been the resurgence in shares of SYQUEST TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYQT)") else Response.Write("(Nasdaq: SYQT)") end if %>, the veteran Fremont, California removable disk drive manufacturer perhaps better known as the company crushed by the success of IOMEGA's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %> Zip drive. In mid-August of 1995, the upstart Zip was only beginning to fight it out with market leader SyQuest. At that point, both stocks had risen substantially over just a few months, with Iomega at a split-adjusted $4 a share and SyQuest at $19 5/8, its highest level since February 1993. Over two years later, Iomega stands at $28 3/4 a share, while SyQuest has gone down down down, nearly perishing more than once. During this period the firm has lost over $200 million, seen its founder ousted, and suffered through the wilderness as new management worked to stave off bankruptcy by hustling up more money and striking elaborate equity-for-debt swaps with suppliers.

The result has been surprising. The company that many presumed dead is still kicking and has recently launched an attractive new high-profile ad campaign with placements in The New York Times and Business Week. After trading as low as $1 11/16 this past June, the stock had recovered to $3 by early October. About that time, HD Brous & Co. analyst Howard Rosencrans upgraded the company from "neutral" to "speculative buy," pushing the stock to $4 a share. When his upgrade was announced October 10, feverish buying sent the shares soaring $1.41 to $5.69.

Rosencrans said SyQuest would soon launch a scaled down version of its 1.5 gigabyte SyJet drive. "We believe that investors may begin to envision a very compelling turnaround starting to materialize at SyQuest," he said, citing the new offering, a stable financial position, and the new management team. Rosencrans suggested that investors might draw an analogy between SyQuest's re-emergence and "the Iomega story -- a seemingly moribund company being revitalized by a proven management team possibly introducing a (potentially) hot product line." Rosencrans himself said the "harsh reality" was that SyQuest faces a "difficult uphill battle" since Iomega's installed base of Zip and Jaz drives "may create a barrier to the acceptance of SyQuest's products." Nonetheless, he suggested that in the short term, the "Iomega fantasy" was liable to induce a SyQuest feeding frenzy.

The new SyQuest is now here. On Monday, the company introduced its 1 gigabyte SparQ drive to sell for $199, with cartridges running 3 for $99. At least in theory, this product at this price point could put pressure on Iomega's 1.0 gigabyte Jaz drive. Plus, computer users comparing a $99 to $129 100 megabyte Zip drive to the SparQ may be induced to buy up. The company's press release includes laudatory comments from execs at major computer retailers COMPUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> and INGRAM MICRO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:IM)") else Response.Write("(NYSE:IM)") end if %>. Plus, storage analyst Crawford del Prete of respected research outfit International Data Corp. celebrated SparQ's low price point, noting that "SyQuest is introducing a product that could significantly transform what has been a niche market."

SparQ may revive SyQuest's business, though even a successful rollout may not represent a major threat to Iomega, which has been churning out impressive earnings and is poised for its own new product announcement at the upcoming COMDEX show. Still, it's worth considering what kind of results SyQuest will need to justify its current price of $4 a share. For comparison, consider Iomega's valuation at $30 a share, the high end of its current trading range. Iomega's market cap, based on 137 million shares, is $4,110 million. Subtract the $166 million in cash and add $50 million in debt, and we get an enterprise value of $3,994 million. With $99.5 million in trailing net profit, Iomega trades at 39.6 times earnings. With $1,509.3 in trailing revenue, it trades at 2.65 times sales. Though the bulls and bears will fight over Iomega, this is clearly as much as investors are willing to pay today for what is unquestionably the premier player in the removable storage space.

With SyQuest shares 80% off their four-year high, surely the stock has more upside potential. No doubt, that's what some speculative buyers have been thinking. Yet SyQuest has perhaps never been so richly valued. In August 1995 when the stock traded up to $19 5/8, the company's 11.06 million shares and $29.7 million in cash gave it an enterprise value of about $187 million, or 0.62 times FY95's unprofitable $299.5 million in sales. At the high of $28 1/2 achieved early in FY94, the company had an enterprise value of $30.6 million, or 1.46 times the trailing FY93 sales and 19.8 times the $15.2 million in trailing earnings. However, even at just $4 a share, SyQuest is now altogether more expensive than it was at either of these two previous highs.

The problem is dilution. To avoid being delisted by Nasdaq and to stay afloat, SyQuest's new management concocted one financing deal after another. The numbers of shares cranked out is staggering. On June 30,1996, SyQuest had 11.5 million shares outstanding. Today, SyQuest shareholders voted on a proposal to increase the number of authorized common shares from 120 million to 240 million! Why? According to the proxy, the company has either "issued or reserved for issuance" most of the currently authorized 120 million shares, and management wants flexibility in addressing future corporate needs. The proxy tallies the score this way as of September 12:

Common stock outstanding     56.8 mil. shares
Common reserved for...
...conv. of preferred stock  14.1 mil. shares
...exercise of warrants      35.9 mil. shares
...employee stock options     4.5 mil. shares
...other commitments          0.2 mil. shares

Since this proxy was filed, SyQuest has issued 10 million more shares of convertible preferred stock (at $1 a share) and warrants for another 7 million shares with an average maximum exercise price of $3.24. Including these shares along with others issued or issuable, the financial tally now looks like this:

Common stock outstanding/issuable           80.9 mil.
Common issuable upon conv. of warrants      43.5 mil.
(max. average price: $3 per share)
Common issuable under employee option plan   4.5 mil.
(average price: $1.40 per share)

Ignoring the employee options for now, it appears that SyQuest is well on its way to having 123.2 million shares. The company does stand to collect about $130 million if all of the warrants are exercised. Still, the drive maker now has an effective market cap of $492.8 million. Subtract the $7 million cash on hand September 30 (the end of fiscal '97) plus the $10 million raised in October and the $130 due from the warrants, and SyQuest has an enterprise value of $346 million. For the year, the firm reported sales of $122.7 million and an operating loss of $68.7 million (versus a loss of $136.7 million in FY96).

Assuming SyQuest deserves even the loftiest recent Iomega multiples and could deliver comparable margins (both big assumptions), the company would need about $8.7 million in net profits on $131 million in revenue. Given the continued challenges facing SyQuest and the ones already met by Iomega, it appears that SyQuest investors are betting on a truly remarkable performance going forward.

SEAGRAM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VO)") else Response.Write("(NYSE: VO)") end if %>
(800) 558-5523 (reservation #656249)
replay through 11/7 @ 9:00 pm EST

11/07/97 (Friday)
BRANDYWINE REALTY TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDN)") else Response.Write("(NYSE: BDN)") end if %>
11:30 am EST
(800) 869-6642 -- live
(800) 869-6642 -- replay through 11/21 from 7:30 am to 11:00 pm EST

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

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.