DJIA: 7647.18 +66.76 (+0.88%) S&P 500: 939.21 +11.52 (+1.24%) Nasdaq: 1507.58 +4.36 (+0.29%) FTSE 5068.80 -69.50 (-1.35%) 30-Year Bond 106 8/32 +19/32 5.69% Yield
QLT PhotoTherapeutics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QLTIF)") else Response.Write("(Nasdaq: QLTIF)") end if %>, a Canadian biotechnology company,
rose $3/4 to $12 3/8 after announcing that the Food and Drug Administration
had given regulatory clearance for the company's early-stage, microinvasive
lung cancer treatment PHOTOFRIN. The company's drug is injected intravenously
and concentrates in tumor cells, eventually producing a toxic form of oxygen
that kills cancer cells when activated by a non-thermal laser. The company
said half the patients undergoing treatment in clinical trials were completely
cancer-free in long-term follow-up exams.
Online music distribution company N2K Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTKI)") else Response.Write("(Nasdaq: NTKI)") end if %> gained $4
1/8 to $21 3/8 after announcing that 1997 fourth quarter revenues are expected
to increase to approximately $4.7 million from $679,000 for the same period
last year. This announcement comes on the heels of last week's report that
N2K had entered into an exclusive deal to become the music retailer for MTV
international online sites, which are currently located in Asia, Brazil,
Japan, and Europe. The company had received some revenue exposure through
an "Inside Wall Street" column in Business Week, which stated that
Q4 earnings for the company would be $4 million. This positive discrepancy,
due to $4 million in online sales of CDs for the quarter, prompted CE Unterburg
Towbin to reiterate its "strong buy" on the firm. Unterburg Towbin cited
an extension of the company's exclusive deal with America Online as a reason
for the reiteration, though many are still leery of the company's lack of
earnings and its price at 93 times sales.
QUICK TAKES: Fruit juice maker Odwalla Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ODWA)") else Response.Write("(Nasdaq: ODWA)") end if %>
gained $1 1/8 to $8 7/8 after reporting late last week a Q1 loss of $0.03
per share and sales that were even with last year's first quarter, during
which some of the company's products were found to contain a strain of
E.coli bacterium... Michigan drugstore chain Arbor Drugs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARBR)") else Response.Write("(Nasdaq: ARBR)") end if %> rose $1 15/16 to $19 9/16 after the company settled out of court with
an AIDS patient who alleged that the company had told his children about
his condition... Collagenex Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGPI)") else Response.Write("(Nasdaq: CGPI)") end if %> added $1
1/8 to $12 in advance of announcing after the close today positive clinical
trial results for its "Periostat [product] as an adjunct to scaling and root
planing (SRP), the most prevalent therapy for moderate to severe periodontal
disease."
VCR programming software company Gemstar International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GMSTF)") else Response.Write("(Nasdaq: GMSTF)") end if %> moved up $2 1/4 to $24 after announcing on Friday that Sony will use
Gemstar's Index Plus+ system in its VCRs... Specialty retailer Brookstone
Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BKST)") else Response.Write("(Nasdaq: BKST)") end if %> added $1 1/16 to $12 7/16 after last week reporting
a 4.1% increase in holiday season same-store sales... ITT Industries
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IIN)") else Response.Write("(NYSE: IIN)") end if %> gained $2 1/8 to $30 9/16 following last week's announcement
that the automotive, fluid technology, and defense & aerospace products
company had sold two plants in Germany and Mexico... Paper products companies
gained ground today after Procter & Gamble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> announced
that it will raise prices for its Bounty, Charmin, and Puffs products by
up to 7%. Kimberly Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> popped up $2 1/2 to $50 and Fort
James Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FJ)") else Response.Write("(NYSE: FJ)") end if %> gained $2 5/16 to $36 5/8 on the news.
Guidant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDT)") else Response.Write("(NYSE: GDT)") end if %> gained $3 1/2 to $55 7/8 on announcing a joint venture with a German financing firm to gain European marketing approval for its microaxial blood pump... Auto and truck parts manufacturer Federal Mogul Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMO)") else Response.Write("(NYSE: FMO)") end if %> rose $2 7/16 to $42 1/4 after announcing an agreement to acquire gasket manufacturer Fel-Pro Inc. for $720 million in cash and stock... Viacom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VIA)") else Response.Write("(AMEX: VIA)") end if %> rose $2 1/4 to $42 1/4 as the Paramount/Fox film Titanic continues to lead box office sales. NBC reportedly paid $30 million last week for the rights to broadcast the movie five times over a five-year period.
American depository receipts (ADRs) for Chinese issues were hit for losses
today amid renewed worries about the strength of East Asian markets. One
of Hong Kong's largest independent investment banks, Peregrine Investment
Holdings Ltd., filed for bankruptcy today due in part to the fact that one-third
of its capital was sunk into a loan to a Jakarta taxi and bus company that
failed, leaving Peregrine unable to service its debts. Peregrine had a large
network of connections, including relations with a number of mainland concerns,
making it the largest investment bank in Asia (excluding Japan). Although
the exact nature of its holdings is murky, Zurich Center Investments recently
planned to pay $200 million for a 24% stake in Peregrine. Peregrine's collapse
prompted a plunge in the local stock market, sending the Hang Seng index
down 8.7%. Chinese ADRs that struggled today included Jilin Chemical
Industrial Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCC)") else Response.Write("(NYSE: JCC)") end if %>, down $5/8 to $8 9/16, and China Eastern
Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEA)") else Response.Write("(NYSE: CEA)") end if %>, off $1 3/8 to $10 7/16. Shanghai Petrochemical
Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHI)") else Response.Write("(NYSE: SHI)") end if %> fell $1 3/16 to $10 11/16 and Beijing Yanhua Petrochemical
Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYH)") else Response.Write("(NYSE: BYH)") end if %> skidded $9/16 to $6 7/16.
North Carolina-based NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> slipped $15/16 to $58
1/16 after reporting Q4 EPS of $1.12 (fully diluted), in line with mean estimates
reported by various services. The company said that it is moving back by
one quarter various cost savings efforts in integrating Barnett Banks. The
company's merger with Barnett was completed last week. For 1998, the company
is forecasting net interest income of $17.5 to $18 billion, $9.5 to $10 billion
in non-interest expenses, and approximately $8 billion in core pre-tax income
before securities gains and extraordinary items for merger charges. That
does include expenses for integrating Barnett, though. Based on 970 million
fully diluted shares and a loan loss provision of 60 basis points, NationsBank
shareholders are looking at core EPS of $4.61 to $4.90, in the range of the
current mean First Call estimate of $4.76.
Dental management company CompDent Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPDN)") else Response.Write("(Nasdaq: CPDN)") end if %> was drilled for a $5 1/2 loss to $12 1/2 after saying that it expects its fourth quarter results to fall short of expectations of $0.31 per share due to higher expenses and service initiatives. The company expects to post Q4 EPS between $0.24 and $0.26 with revenues matching expectations. The company noted that it incurred higher costs for "product and service initiatives in the dental benefit and practice management areas" for which it will record a one-time charge (to cover these costs). Unlike traditional managed care companies that act as "gatekeepers" for services and give fixed capitation payments, each panel dentist in the CompDent network receives steady monthly capitation payments from the company according to the number of subscribers that have selected them regardless of the frequency or value of dental services performed. Therefore, incentives to control costs and risks associated with over-utilization are shifted to the dentists.
QUICK CUTS: Athletic products retailer Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> fell $1 3/16 to $11 15/16 after announcing that it expects fourth quarter
earnings per share to be about $0.35 excluding a $2.5 million, or $0.08 per
share, non-recurring charge primarily for store closings. This compares with
estimates of $0.56 per share... Apria Healthcare Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHG)") else Response.Write("(NYSE: AHG)") end if %>
dropped $7/8 to $11 after its board rejected an acquisition proposal from
Transworld HealthCare <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWHH)") else Response.Write("(Nasdaq: TWHH)") end if %> and Hyperion Partners II, its
largest stockholder... Elbit Vision Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EVSNF)") else Response.Write("(Nasdaq: EVSNF)") end if %> dropped
$1 7/16 to $7 after the company announced that it expects to report revenues
and net income for the fourth quarter of 1997 below that reported for its
fourth quarter in 1996. The company was expected to make $0.15 per share,
matching Q4 1996 EPS.
Embattled physician practice management firm PhyCor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:PHYC)") else Response.Write("(Nasdaq:PHYC)") end if %>
dropped $3 3/8 to $19 after announcing that it expects to record a number
of charges in both the fourth quarter of 1997 and the first quarter of 1998...
Luggage maker Samsonite Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAMC)") else Response.Write("(Nasdaq: SAMC)") end if %> lost $2 3/8 to $32 3/4
after Barron's reported that the company's wholesale customers trimmed
their orders because of the perceived threat from its retail stores... Scrap
metal recycling company Metal Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTLM)") else Response.Write("(Nasdaq: MTLM)") end if %> was scrapped
$7/8 to $15 7/8 after the Wall Street Journal weighed in with some
skepticism surrounding the company's business plans in today's "Heard on
the Street" column... Stratasys Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSYS)") else Response.Write("(Nasdaq: SSYS)") end if %> lost $2 3/16 to
$9 1/16 after the "rapid prototype" device maker announced that it sees Q4
and year-end earnings "substantially" lower than estimates because of weak
international sales.
FOOL
ON THE HILL
An Investment Opinion by Randy
Befumo
Fools Beware! This info. is stale!
After capping off a wildly successful 1997, Consolidated Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNS)") else Response.Write("(NYSE: CNS)") end if %> begins 1998 with an impressive accomplishment -- the closeout retailer
will join the illustrious ranks of the S&P 500. The change was prompted
by Consolidated's pending acquisition of fellow S&P 400 MidCap member
Mac Frugal's*Bargains Close-Outs <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MFI)") else Response.Write("(NYSE: MFI)") end if %>. With this deal, Consolidated
increased trailing sales by 26.9% overnight and enscounced itself as the
dominant closeout and deep discount retailer in North America. Apparently
this move was enough to capture the imaginations of the S&P 500 selection
committee, a board made up of the editorial staff at Standard & Poor's,
a unit of McGraw-Hill.
As Consolidated shares crept up $1 13/16 to $41 13/16 on this news, one would
think that the financial community had completely digested news of the Mac
Frugal's acquisition. S&P's decision to move Consolidated to the 500
completely removed the slowly shrinking Echo Bay Mines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECO)") else Response.Write("(NYSE: ECO)") end if %>
from the S&P family of indices and increased the weighting of retailers.
The board also added Proffitt's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFT)") else Response.Write("(NYSE: PFT)") end if %> and Zions Bancorp
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZION)") else Response.Write("(Nasdaq: ZION)") end if %> to the MidCap 400 to cover the holes left there by the departure
of Consolidated and Mac Frugal's. Certainly, with billions of dollars managed
to mimic the S&P 500, it is entirely appropriate for the board to take
three months after a major deal to make the necessary changes.
Unfortunately for many investors, S&P is hardly a laggard. Three sell-side
analysts officially covering Consolidated have not issued reports revising
their estimates since the Mac Frugal's acquisition. Despite the fact that
these estimates obviously cannot include the potential effect of the Mac
Frugal's acquisition, they are still being used by the major estimate tracking
services to calculate the average earnings estimates for fiscal 1998 and
fiscal 1999. In fact, four of the fifteen analysts covering the company have
only updated their numbers in the past two weeks, meaning that back in December
seven of the fifteen analysts' estimates used to determine the mean estimate
did not reflect the rather substantial Mac Frugal's acquisition. In a word,
until the last few weeks, the earnings estimates that many investors were
using to value Consolidated were stale.
Consensus earnings estimates have become one of the major tools used by
individual investors to evaluate companies as potential investments. Like
any other tool, these estimates have their limits. Whenever a company undergoes
some kind of significant change, earnings estimates for that company routinely
lag the true economic impact of that change. In the case of Consolidated,
the difference was about 20 cents. According to I/B/E/S, the three pre-Mac
Frugal's estimates for fiscal 1999 range between $1.92 and $2.05 per share,
while the twelve post-Mac Frugal's estimates are between $2.05 and $2.25
per share. The average of the twelve post-Mac Frugal's estimates is $2.16
per share, three cents higher than the current I/B/E/S consensus estimate.
While First Call currently lists EPS estimates of $2.16 for 1999, because
we cannot access the contributing analysts and the date of their last reports
it is impossible to tell if this number might actually be higher if it threw
out the pre-Mac Frugal's numbers. First Call requires estimate revisions
after 90 days or it removes the estimate, a policy that has given it a reputation
in the industry for having "fresher" numbers than its peers I/B/E/S, Nelson's,
and Zacks. However, back in November and December when most of the numbers
were pre-Mac Frugal's, they would have been just as wrong as their competitors.
The real problem is not the estimate services, but rather the individual
investors' understanding of the data being used to get the consensus estimate.
After any significant change in a company or an industry, it takes weeks
for sell-side analysts to get all of the necessary information to come up
with new estimates. While they can change their ratings overnight, their
numbers come from models that can get pretty sophisticated and require quite
a bit of effort to adjust. This means that investors should probably take
earnings estimates with a grain of salt -- particularly when there are big
changes going on in an industry. This is why a purely quantitative investing
approach based solely on earnings estimates can be absolutely disastrous.
Without any concept of what is really going on at a company or in an industry
recently, it is impossible to determine whether the estimates are solid or
stale.
In the case of Consolidated, the difference seems minor, but sometimes it
can be quite large. For instance, for weeks after Seagate <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %>
first warned of falling disk drive prices, estimates for companies like
Applied Magnetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %> and Read-Rite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %>
still called for the companies to book profits in 1998 and 1999. Some investors
saw these numbers and with some quick math became excited when they perceived
the companies to be trading at two or three times next year's estimates.
The reality was that these estimates were already stale and did not reflect
the quickly deteriorating picture in the drive industry. Any investor that
made an investment based on these estimates unhappily discovered a few weeks
later that these numbers were substantially revised downward.
In the end, it is incumbent on individual investors not just to give earnings
estimates a quick check and be done with it, but rather to do the necessary
reading about a company or an industry before investing. This can allow investors
to spot short-term information inefficiencies where the facts about what
is going on are known but the figures have not yet been fully adjusted to
reflect those facts. With billions of dollars invested in blind quantitative
models premised on the sorry notion that somehow numbers are more perfectly
efficient than human intelligence, there are always opportunities to use
knowledge that is not all that hard to come by to discover investment
opportunities the more numero-centric cannot see.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Randy Befumo (TMF Templr), a Fool
One
Dale Wettlaufer (TMF Ralegh), Fool
Two
Alex Schay (TMF Nexus6), Fool
Three
Contributing Writers
Brian Bauer (TMF Hoops), Fool
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Editor