DJIA: 7753.55 +61.78 (+0.80%) S&P 500: 961.51 +10.78 (+1.13%) Nasdaq: 1562.88 +15.82 (+1.02%) S&P 1500 206.19 +2.30 (+1.13%) 30-Year Bond 104 14/32 -1 1/32 5.81% Yield
Following Tuesday's announcement that it is anticipating a deceleration of growth, today office products distributor Corporate Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CEXP)") else Response.Write("(Nasdaq: CEXP)") end if %> rose $1 3/8 to $9 3/8 after announcing a Dutch auction tender offer for up to 35 million shares at prices between $10 and $11.50 per share in cash. That represents nearly one-quarter of the company's current share count and an average buyback price of about 9 times annualized free cash flow, which explains debt rating agency Moody's concern at what is essentially a leveraged recapitalization of the company. Corporate Express also said it has put into place a poison pill, perceiving itself as undervalued and possibly vulnerable to abusive takeover tactics. The tender offer also puts into jeopardy the company's pooling-of-interest structure of recent acquisitions, meaning it may have to write up goodwill on the balance sheet and take charges for goodwill amortization, which will decrease EPS by $0.03 to $0.04 for fiscal 1998 but will not decrease cash flow.
Hub Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HUBG)") else Response.Write("(Nasdaq: HUBG)") end if %> gained $3 to $28 after BT Alex. Brown raised its rating on the transportation logistics and marketing company to "strong buy" from "buy." Hub recently surpassed the billion dollar sales mark and may be experiencing a bounce back from intermodal transportation problems caused by railroad operator Union Pacific Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNP)") else Response.Write("(NYSE: UNP)") end if %> difficulties last quarter. Earlier this week Union Pacific reported that its "[s]ystem inventory has dropped significantly, and average train speed is at its highest point since the onset of the service crisis." The Union Pacific system is still tighter than capacity allows, and some analysts continue to have doubts as to whether the railroad has resolved all of its problems, so Hub Group might not be out of the woods yet. The upgrade comes, however, as Hub was trading near its 52-week low of $24 1/4 and at the bottom of its historical 18-26 P/E range, so the analyst might be thinking that the valuation risk is washed out of the stock.
R&B Falcon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> gained $2 3/16 to $30 1/4 after yesterday announcing the renewal of contracts for eight offshore drilling rigs with turnkey drilling company Applied Drilling Technology. The contracts call for quarterly dayrate adjustments with a price floor, leaving upside for R&B based on standard industry price indexes. Other performers in the oil services industry today include tubular coating, inspection, and oilfield equipment manufacturer Tuboscope Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBI)") else Response.Write("(NYSE: TBI)") end if %>, which gained $1 5/8 to $19 3/16; offshore driller (the name kind of says it all) Marine Drilling Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDCO)") else Response.Write("(Nasdaq: MDCO)") end if %> added $1 11/16 to $17 9/16; and oilfield equipment manufacturer Smith International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SII)") else Response.Write("(NYSE: SII)") end if %> gained $3 3/4 to $52 7/8. Global Marine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLM)") else Response.Write("(NYSE: GLM)") end if %> cruised $1 9/16 higher to $22 5/16 after reporting Q4 EPS of $0.49 (before charges), up 104% from last year's EPS before charges.
Station Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STN)") else Response.Write("(NYSE: STN)") end if %> exploded for $4 1/8 to $15 1/2 after the operator of casinos and slots routes agreed to merge with diversified real estate investment trust Crescent Real Estate Equities <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEI)") else Response.Write("(NYSE: CEI)") end if %>. Crescent will cede to Station shareholders 0.466 of its share for each Station share, pricing the deal as of the close today at $17.24 per Station share. Crescent says the deal will be accretive to funds from operations (FFO) by 17% per REIT unit.
QUICK TAKES: Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> picked up $2 1/16 to $45 1/8 after another quarter of steady performance. The enterprise computing and software company reported Q2 EPS of $0.57 (before charges), $0.03 better than estimates. Sun's Asian business ticked down only marginally, allaying some fears left over from the Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> report... Explosives detection system maker Invision Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INVN)") else Response.Write("(Nasdaq: INVN)") end if %> jumped $1 1/4 to $7 7/8 after announcing a $2.6 million order from the British Airport Authority for two bomb detection systems as well as services... System integrator Claremont Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLMT)") else Response.Write("(Nasdaq: CLMT)") end if %> rose $1 3/8 to $11 3/4 on pre-announcing Q2 EPS of $0.03 to $0.06, which is below estimates of $0.14. The company said, though, that it is deferring a big chunk of software revenue from a government deal that is closed but which still has to go through a final competitive request for proposal (RFP).
Medical equipment company Boston Scientific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> gained $3 1/2 to $46 9/16 after reporting Q4 revenues of $493 million, up 14% over last year. That was within the range of revised revenue estimates from most analysts covering the company... Hong Kong exposed companies made nice headway today with a 3.74% rise in the Hang Seng Index. Dividend cow Hong Kong Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HKT)") else Response.Write("(NYSE: HKT)") end if %> gained $1 1/2 to $19 7/8; NatWest Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NW)") else Response.Write("(NYSE: NW)") end if %> picked up $4 1/2 to $102; and HSBC Holdings was up 3.6% in London trading earlier today... Regal Cinemas <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REGL)") else Response.Write("(Nasdaq: REGL)") end if %> surged $3 1/8 to $30 1/4 before being halted at midday on rumors that the company will be bought out by buyout firm Kohlberg Kravis Roberts & Co., which is best known for its role in the RJR Nabisco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> battle. For those who don't watch CNBC, the cable financial information network will be playing Barbarians at the Gate, the movie about that whole affair, all weekend long... AMC Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AEN)") else Response.Write("(AMEX: AEN)") end if %> gained $2 3/4 to $25 3/4 on the Regal news.
EARNINGS MOVERS
Elantec Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELNT)") else Response.Write("(Nasdaq: ELNT)") end if %> up $1 7/16 to $7 7/16; Q1 EPS: $0.05; Estimate: $0.05
Cyberonics Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYBX)") else Response.Write("(Nasdaq: CYBX)") end if %> up $1 1/4 to $16 5/8; Q4 EPS: ($0.15); Estimate: ($0.26)
Rogue Wave Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RWAV)") else Response.Write("(Nasdaq: RWAV)") end if %>; up $1 1/4 to $10 1/4; Q1 EPS: $0.13; Estimate: $0.13
Fashion retailer Nordstrom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOBE)") else Response.Write("(Nasdaq: NOBE)") end if %> was marked down $4 5/8 to $44 7/8 by investors disappointed in the company's announcement that it doubts it will make its fourth quarter earnings estimate of $0.79 per share. The company did say, though, that it expects to report fourth quarter EPS of $0.72 to $0.77, representing growth of up to 45%. Sales for the last week of December and into January were below plan, resulting in heavy markdown activity to move stuff off the racks. The company reported that markdowns taken thus far in 1998 have exceeded last year's total over the same time period. However, strong sales in November and early December prompted buyers to load up on inventory. The majority of the markdowns that resulted were on inventory at the company's catalog division, which has expanded its product line and contributes roughly $160 million to Nordstrom's total yearly revenues of $4.7 billion. It is estimated that it will take the rest of the first quarter to work through the excess inventory in all departments.
Teltrend Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLTN)") else Response.Write("(Nasdaq: TLTN)") end if %>, a supplier of channel units, repeaters, and termination units used by telcos to provide voice and data over their existing telephone networks (primarily in the local loop), dropped $7/8 to $14 1/8 after announcing that it expects to report Q2 EPS between $0.12 and $0.14 versus expectations for $0.22. When ADC Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADCT)") else Response.Write("(Nasdaq: ADCT)") end if %> dropped yesterday due to comments by institutional brokerage SoundView Associates that ADC's bottom line would be hurt in the near term (3 to 5 months) as two Baby Bells, namely Bell Atlantic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> and SBC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %>, digest acquisitions and deal with the uncertainty surrounding telecommunications legislation, Teltrend shares fell 9% as well. In fiscal 1997 Teltrend attributed 19.3% of its total sales to SBC Communications. Teltrend is also facing fierce competition in its repeatered T1 products business from suppliers of high data-rate digital subscriber line (HDSL) systems, which are an alternate method of delivering T1 services in the local loop.
A number of companies were punished today based on earnings announcements, including marketing services firm Intelliquest Information Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IQST)") else Response.Write("(Nasdaq: IQST)") end if %>, which fell $4 to $9 1/4 after pre-announcing Q4 EPS, net of charges, of $0.04 to $0.06, below estimates of $0.17. Data warehousing concern Red Brick Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REDB)") else Response.Write("(Nasdaq: REDB)") end if %> dropped $2 1/16 to $6 15/16 after reporting Q4 EPS of $0.03, versus estimates of $0.02. Computer software services firm Analysts International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANLY)") else Response.Write("(Nasdaq: ANLY)") end if %> slipped $3 1/8 to $27 7/8 after reporting Q2 EPS of $0.22, just missing estimates of $0.23. VideoServer Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VSVR)") else Response.Write("(Nasdaq: VSVR)") end if %> fell $2 1/32 to $12 7/8 after reporting Q4 EPS of $0.04, compared with estimates of $0.03. Central Newspapers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ECP)") else Response.Write("(Nasdaq: ECP)") end if %> was cut $3 3/8 to $65 1/2 after estimate for $1.04. Building maintenance and home repair company American Residential Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARS)") else Response.Write("(NYSE: ARS)") end if %> sprang a leak for $3 11/16 to $10 1/4 after stating that it expects Q4 earnings to be "substantially lower" than estimates.
QUICK CUTS: Specialty semiconductor company Microchip Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCHP)") else Response.Write("(Nasdaq: MCHP)") end if %> fell $5 7/8 to $21 7/8 after reporting Q4 EPS of $0.30 (before charges), missing the mean First Call estimate of $0.36... Engine maker Briggs & Stratton Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGG)") else Response.Write("(NYSE: BGG)") end if %> fell $2 11/16 to $44 1/8 after posting Q2 EPS of $0.41, short of estimates calling for $0.48.
FOOL
ON THE HILL
An Investment Opinion by
Randy Befumo
Spiders Man! -- (SPDRs)
Last week we covered some of the facts and fiction surround the S&P 500 Index. A number of readers wrote in asking about the newfangled S&P Depositary Receipts (SPDRs) that have been quite popular recently -- particularly among managers of the Fool Portfolio, who purchased some of these arachnids back on December 31, 1997. Because of the flood of questions, it seems like a good idea to go over what may be a superior alternative to an S&P 500 Index fund for many investors.
S&P Depositary Receipts, otherwise known as "spiders," represent a single unit of ownership in the SPDR trust. Units of the trust are bought and sold like individual shares of stock and they trade on the American Stock Exchange under the ticker symbol SPY. As the SPDR trust is a pool of money managed to perfectly mimic the Standard & Poor's 500 Composite Stock Price Index, the price of a unit in the trust is always the current value of the S&P 500 divided by 10.
The SPDR trust is a unit investment trust that operates under different regulations than a traditional mutual fund, meaning that there are some significant differences between the two. One of the main differences between a trust and a mutual fund is that a trust does not have to distribute capital gains. In fact, because shares in the trust are set at the time it is sold, owning a unit in a trust is much more like owning a share of stock than owning a share in a mutual fund. Much like a closed-end mutual fund, when unit trusts come up for sale there are a fixed number of shares outstanding. Investors buy these shares and then trade them among themselves.
State Street Bank & Trust of Boston is the bank that holds the actual stock in trust that is represented by the units that individual investors own. The bank is the entity that deducts the management fee and distributes dividends every three months. SPDRs can be bought and sold throughout the day as they trade freely on the American Stock Exchange, which is for some investors an improvement over S&P 500 Index funds, which can only be bought or sold at the end of a trading day. Also, buying and selling among individual investors in SPDRs does not cause tax consequences for other investors, unlike a mutual fund. In a index fund if there were mass selling that caused the fund to liquidate part of its portfolio, it would cause tax consequences for investors that would be distributed at year end -- the same is not true for SPDRs. Finally, for investors of a perverse bent, you can even short SPDRs, which you cannot do with an index fund.
While it is theoretically possible that one investor could try to corner the market in SPDRs and subsequently drive the price up above the underlying economic value of the S&P 500 companies' shares the unit represents, this is unlikely simply because it would be completely irrational. Because this is theoretically possible, however, the wording the American Stock Exchange uses to describe the SPDRs stresses that it is "reasonable" to expect the market value of SPDRs to conform to the market value of the S&P 500 Index. Although there has been no exhaustive study of the subject done at Fool HQ, it would also be reasonable to expect occasional divergences between the S&P 500 Index and the value of SPDRs, even if they were only a few pennies.
For many investors, SPDRs may be a cheaper than buying an S&P 500 Index fund. The cost of running the SPDR is 0.1845%, versus 0.30% to 0.50% for many S&P 500 Index funds. However, you also need to pay a commission to buy and sell SPDRs that you would need to add to the 0.1845% on a percentage basis to determine whether or not it is really cheaper. The drawback of SPDRs is that, unlike a mutual fund, you cannot put small amounts of money into SPDRs after you open an account without paying a commission. For those investors who regularly put $50 or $100 a month into a S&P 500 Index fund, SPDRs do not make much sense. Take your time, find out how much it will really cost to invest in each alternative by adding commissions to whatever annual expenses would be incurred, determine whether you want to add amounts regularly, and then decide between an S&P Index fund or SPDRs.
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
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