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HEROES

Host Marriott Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMT)") else Response.Write("(NYSE: HMT)") end if %> gained $1 to $19 15/16 today after yesterday announcing its $3.3 million acquisition of the remaining 41% interest in FRC I Limited Partnership it didn't already own through its subsidiaries. FRC I Limited Partnership owns Remington Club II, a 222-unit full-service retirement community in Rancho Bernardo, Calif., developed by a subsidiary of Host Marriott in 1990. The acquisition brings Host Marriott's total investment in the property to about $28 million. Host Marriott, better known for its Marriott and Ritz-Carlton hotels, already owned Remington Club I, the first phase of the two-phase senior living development. Remington Club II's 1998 earnings before interest, taxes, depreciation, and amortization (EBITA) is projected to be $3.5 million. The company expects EBITDA this year to increase approximately 15% over 1997.

Callaway Golf <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELY)") else Response.Write("(NYSE: ELY)") end if %> jumped $1 7/8 to $32 7/8 after Business Week's "Inside Wall Street" column worked its weekly tip sheet magic by publishing the opinion of a money manager who thinks the golf equipment maker would make a nice acquisition for Nike <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %>. Money manager George Cohen of Cohen Klingenstein & Marks says Callaway is worth $45 a share to Nike. According to Technimetrics, Cohen's firm increased its position in Callaway by over 274,000 shares in the second quarter, or about 50%. No doubt, Callaway would not be a ridiculous acquisition at 20 times the mean 1998 EPS estimate. In a stock-for-stock deal, it could actually be accretive to Nike's EPS going forward, given Callaway's growth rate relative to Nike's and since Nike is selling at about 21 times calendar 1998 EPS estimates. Nevertheless, most readers have few reasons to trust implicitly Business Week's wisdom in light of the flea-bitten track record of "Inside Wall Street" subjects.

Like the recent craze over nutritional supplements such as Gingkoba, the market snapped up shares of Nutraceutical International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NUTR)") else Response.Write("(Nasdaq: NUTR)") end if %> today, driving them up $1 15/16 to $19 7/16 on its first day of trading. The nutritional supplement manufacturer and marketer, which sells about 800 supplements in the U.S. and abroad, offered roughly 3.3 million shares at an initial public offering (IPO) price of $17.50. The market was apparently sold on Nutraceutical's financials and growth strategy and the nutritional supplements market as a whole -- in its prospectus, Nutraceutical pointed out that the "VMS Market" was growing rapidly, generating $6.5 billion in sales in 1996 compared with $5 billion in 1994. For the 12 months ended December 31, the company's sales rose approximately 17% to $101.6 million from $86.6 million in 1996. Adjusted EBITDA for 1997 was $20.3 million, approximately 40.4% higher than $14.4 million the year before. Nutraceutical's brands include Solaray, KAL, NaturalMax, VegLife, Premier One, and Solar Green.

QUICK TAKES: Chancellor Media <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMFM)") else Response.Write("(Nasdaq: AMFM)") end if %> gained $2 1/8 to $43 3/8 after announcing yesterday an agreement to acquire WWDC AM/FM in Washington, D.C. for $72 million. This fills out Chancellor's radio presence, at eight stations, in the Washington market... Beverages company Cott Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COTTF)") else Response.Write("(Nasdaq: COTTF)") end if %> rose $1 5/8 to $9 3/4 after Business Week highlighted the company in its "Inside Wall Street" column. The February 3 death of company chairman Gerald Pencer should bring acquirers to the deal table, hopes the money manager sourced in the piece... Telecom services reseller Tel-Save Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TALK)") else Response.Write("(Nasdaq: TALK)") end if %> jumped $2 29/32 to $27 11/16 after the company announced that it has "engaged Salomon Smith Barney to advise the Company with respect to the possible sale of the Company."

Grocery store company American Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASC)") else Response.Write("(NYSE: ASC)") end if %> gained $1 3/8 to $25 after the Franklin Group of Funds, including those run by Michael Price, today disclosed a 2.5 million share stake in the company, according to Bloomberg... Internet usage tracking and advertising services company DoubleClick Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DCLK)") else Response.Write("(Nasdaq: DCLK)") end if %> rocketed up $9 3/4 to $26 3/4 from its initial public offering (IPO) price of $17 per share. Counting an over-allotment option that will almost certainly be exercised by the underwriters, the company is selling 4.025 million shares and was initially valued at approximately $312 million... Consumer and business services provider Cendant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CD)") else Response.Write("(NYSE: CD)") end if %> surged $1 11/16 to $37 3/4 after the Florida Department of Insurance announced that it will hold hearings in March to review the Form A filings of both Cendant and American International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIG)") else Response.Write("(NYSE: AIG)") end if %> regarding the acquisition of American Bankers Insurance Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABI)") else Response.Write("(NYSE: ABI)") end if %>.

Mass data storage systems maker EMC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> advanced $1 1/16 to $36 15/16 in the wake of Investor's Business Daily's report Wednesday that said the company plans to increase earnings by 30% this year through stronger sales, a broadening of its software portfolio, and increased customer service... Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %> moved up $1 to $20 1/8 after The Wall Street Journal reported that the Texas Pacific Group and Kohlberg Kravis Roberts & Co. have adjusted the terms of their $600 million rescue package for the healthcare company to fend off a rival bid... AirTran Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAIR)") else Response.Write("(Nasdaq: AAIR)") end if %> took off and gained $7/16 to $5 1/2 after the company, formerly ValuJet, said it is seeing the results of its recently launched marketing and advertising campaign in its future bookings. AirTran, which reported a fourth quarter loss of $0.91 per share, also said, "We believe that the airline is positioned for a turnaround in 1998...

Audio Book Club <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KLB)") else Response.Write("(AMEX: KLB)") end if %>, which sells audio books by mail order and via the Internet, surged $7/8 to $6 5/8 after announcing that its total membership has surpassed 300,000 members... Outdoor recreational products manufacturer Coleman Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLN)") else Response.Write("(NYSE: CLN)") end if %> rose $1 3/4 to $18 5/8 after reporting a fourth quarter loss (before charges for restructuring) of $0.10 per share versus last year's loss of $0.67 per share. The First Call estimate was a loss of $0.07... Power equipment manufacturer SL Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SL)") else Response.Write("(NYSE: SL)") end if %> climbed $7/8 to $13 3/8 after announcing second quarter earnings of $0.21 per share, compared with $0.16 for the prior-year period... GTECH Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTK)") else Response.Write("(NYSE: GTK)") end if %> hit the jackpot, winning $1 15/16 to $33 9/16 after announcing that the Texas Lottery has terminated the process it initiated last August to find a new service provider to replace GTECH, which specializes in computerized online lottery products and services.

Precision timing and frequency products maker Datum Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DATM)") else Response.Write("(Nasdaq: DATM)") end if %> powered up $1 13/16 to $17 1/4 after announcing fourth quarter earnings of $0.01 per share, topping the break-even estimate listed by First Call... Laser manufacturer Laser Power Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LPWR)") else Response.Write("(Nasdaq: LPWR)") end if %> vaulted $1 1/4 to $7 1/4 after announcing that it has received a Notice of Allowability from the Patent and Trademark Office on a patent of a concept that increases the efficiency of its microlasers. Yesterday the company also announced the receipt of the first two orders for its T-2000 Series high-power 1550nm microlasers designed for fiber optic communications applications... Seismic data acquisition systems maker GeoScience Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSCI)") else Response.Write("(Nasdaq: GSCI)") end if %> leapt $1 1/8 to $11 3/8 after announcing fourth quarter earnings (from continuing operations) of $0.23 a share, in-line with the First Call mean estimate.

Paris-based insurance conglomerate AXA-UAP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXA)") else Response.Write("(NYSE: AXA)") end if %> rose $2 1/8 to $47 1/2 after denying rumors that it was selling its U.S. securities brokerage Donaldson, Lufkin & Jenrette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLJ)") else Response.Write("(NYSE: DLJ)") end if %>. AXA-UAP owns about 44% of the brokerage firm through its majority owned U.S. subsidiary Equitable Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EQ)") else Response.Write("(NYSE: EQ)") end if %>... Hong Kong-based Deswell Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSWLF)") else Response.Write("(Nasdaq: DSWLF)") end if %> surged $3 1/16 to $20 1/16 after reporting third quarter EPS of $0.78 versus $0.59 for the prior-year period... Spain's Banco Santander S.A. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STD)") else Response.Write("(NYSE: STD)") end if %> jumped $2 3/8 to $45 3/8 after the bank announced yesterday that it will pay $4.1 billion for the roughly 52% of Banco Espanol Credito S.A. (Banesto) it doesn't already own. In a statement confirming Banco Santander's creditworthiness, Moody's said it believes the purchase "should give rise to opportunities for both efficiency and revenue enhancement for the entire group"... Zoom Telephonics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZOOM)") else Response.Write("(Nasdaq: ZOOM)") end if %> rallied $23/32 to $7 29/32 after the data network access products maker reported fourth quarter earnings of $0.04 per share compared with a loss of $0.03 in Q4 1996.

Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> picked up another $3 1/2 to $126 5/16 as analysts tweaked up their earnings estimates on the company as Dell continues to prove the superiority of its working capital management strategy. Dell said yesterday that it sees PC industry growth at the upper end of the recent historical 15-20% yearly growth range.

GOATS

Shares of low-cost air carrier Southwest Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> slumped $15/16 to $27 3/4 after Donaldson, Lufkin & Jenrette helped drag down the entire airline sector by issuing a cautious report on the industry's near-term earnings prospects. DLJ is concerned that the Asian financial crisis will have a worse-than-expected impact on the group's earnings, possibly as early as this fiscal year. Southwest, which does not operate any international routes, might be expected to be insulated from the Asian fallout. However, a slackening in Asian demand might hurt Southwest's competitors that do business in that part of the world and who might try to take market share in the U.S. to take up the slack. Plus, there's that whole Iraq thing. Other airlines lost altitude today as well. UAL Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %> lost $3 1/2 to $85 1/4, US Airways Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %> was down $1 15/16 to $64 1/16, Trans World Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %> fell $11/16 to $12 1/2, Delta Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %> dropped $3 1/8 to $115 3/16, and AMR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %> descended $5 13/16 to $123 7/8.

Athletic footwear maker Converse Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVE)") else Response.Write("(NYSE: CVE)") end if %> dropped $9/16 to $6 9/16 after reporting a Q4 loss from continuing operations of $0.37, missing the mean First Call estimate of negative $0.29 per share. The net loss for the quarter was $1.03 per share (including $11.5 million in charges). The company that used to provide hi-tops to NBA superstars Magic Johnson and Larry Bird blamed the losses on lower gross profit margins and retail inventory oversupply due to an industry-wide weakening in demand for sneakers. Rival Fila Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> said on Feb. 12 that the sneaker sales slowdown would also reduce its Q4 profits, and both Nike <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> and Reebok <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBK)") else Response.Write("(NYSE: RBK)") end if %> are near their lows. Converse, which was the subject of a Dec. 18 Daily Trouble, has decided to pursue the golden rookie strategy by building an advertising campaign around Denver Nugget Bobby Jackson in the hopes that he will blossom and stay with the firm throughout his illustrious career -- like Jordan, Hill, and Bryant. This shift is due in part to the fact that Dennis Rodman's shoes are selling poorly and Latrell Sprewell got dumped after he attacked his coach, which tends to hurt public relations.

Brilliant Digital Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BDE)") else Response.Write("(AMEX: BDE)") end if %> tumbled $2 7/8 to $3 3/16 after the maker of 3D interactive entertainment products said it expects to report a Q4 loss of $0.18 per share on March 12, falling short of the $0.26 per share expected by the two analysts surveyed by I/B/E/S. Revenues are expected to climb 59% to $110,000 compared to the same quarter a year ago, but the net loss for the period will likely widen nearly 12% to $1.45 million. The company said delays in PC shipments will hold back shipments of its interactive Multipath Movies products until fiscal Q2, since the new products are bundled with PCs. Earnings and revenues will be hurt because the delay will prevent users from buying new on-line Multipath Movies episodes over the Internet as early as the firm had expected. The new products, which the firm says "combine the interactivity of computer games with the plot and character development of feature films," are based on such family favorites as Popeye, Superman, and Xena: Warrior Princess.

Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %>, a provider of bandwidth enhancement technology for fiberoptic communications networks, was slammed for $16 1/8 to $42 after announcing in conjunction with its Q1 1998 results that a major customer, WorldCom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %>, will delay ordering new equipment until "the latter part of 1998." Ciena reported Q1 EPS of $0.37, which beat both estimates and Q4 1997 results by $0.02. The results represented a 184% increase over Q1 1997 EPS of $0.13. Ciena noted that the WorldCom delay will result in Q2 revenue that is "sequentially flat or possibly lower" than the first quarter, but the company was adamant that the push-out was not due to competitive pressures from companies like Lucent <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %>. Ciena stated in its conference call that it is still "comfortable" with 1998 revenue estimates of $600 million (due to the hope that AT&T and others might fill the revenue shortfall), and it expects gross margins to narrow to the 52-55% range and operating expenses to possibly rise to 32% of revenues. Using the conservative end of these figures, Ciena may still make $120 million in operating earnings for the year. Ciena currently trades at 30 times 1998 EPS estimates of $1.47 on mean revenue estimates of $565 million, which compared with its present growth rate is still by no means cheap.

QUICK CUTS: Gold mining firm Crystallex International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KRY)") else Response.Write("(AMEX: KRY)") end if %> was shafted $5/16 to $6 5/8 on share dilution fears after the company said the holders of $10 million of its convertible notes converted the notes into a total of 3,044,315 shares at an average price of $3.31... Mama Mia! Back Bay Restaurant Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAPA)") else Response.Write("(Nasdaq: PAPA)") end if %>, operator of the Papa Razzi Italian restaurant chain, was burned for $1 1/2 to $6 1/8 despite reporting Q4 EPS of $0.24, a 50% increase over the results a year ago... Computer catalog retailer Micro Warehouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MWHS)") else Response.Write("(Nasdaq: MWHS)") end if %> lost another $7/8 to $13 3/8 after reporting a Q4 loss of $1.30 per share (including charges) yesterday.

Software and information systems company Broadway & Seymour <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BSIS)") else Response.Write("(Nasdaq: BSIS)") end if %> dropped $7/8 to $7 7/8 after reporting Q4 EPS of $0.09, in line with the First Call mean estimate. The company added, however, that it expects to see little or no profit in Q1 due to the postponement of a major contract at its Elite Information Systems subsidiary and "timing of major bank customer commitments"... Work platform and aerial lift manufacturer JLG Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JLG)") else Response.Write("(NYSE: JLG)") end if %> slipped $9/16 to $14 15/16 after yesterday reporting fiscal Q2 EPS of $0.17, which beat the First Call mean estimate of $0.15... Cable TV equipment maker Blonder Tongue Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BDR)") else Response.Write("(AMEX: BDR)") end if %> lost $3/4 to $15 3/16 after reporting Q4 EPS of $0.20, up 33% year-over-year but a penny short of the First Call mean estimate.

Contract manufacturer of memory modules and PC cards SMART Modular Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMOD)") else Response.Write("(Nasdaq: SMOD)") end if %> declined $5 13/16 to $30 3/16 despite reporting Q4 EPS of 0.35, beating the First Call consensus estimate by $0.02. CIBC Oppenheimer cut its Q2 and fiscal 1998 earnings estimates for the company to $0.30 and $1.39 per share from $0.34 and $1.42 per share, respectively... Embroidery machinery maker Hirsh International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRSH)") else Response.Write("(Nasdaq: HRSH)") end if %> plummeted $10 3/8 to $11 1/4 after saying that Q4 EPS will be "breakeven or better" when the company reports earnings, likely before the second week of March. Analysts had been expecting EPS of $0.33 to $0.35. Both Janney Montgomery Scott and BA Robertson Stephens downgraded the stock.

PMR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMRP)") else Response.Write("(Nasdaq: PMRP)") end if %> lost $6 3/16 to $12 3/8 after the mental health services provider reported Q4 EPS of $0.18, which was in-line with the street estimate. However, the company said its largest customer has been informed by the Health Care Financing Administration that one of its PMR-managed programs will no longer be considered "provider-based" for Medicare reimbursement purposes... Automated software and Year 2000 company INTERSOLV Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISLI)") else Response.Write("(Nasdaq: ISLI)") end if %> tumbled $3 5/8 to $16 1/4 despite reporting Q4 EPS of $0.24, which beat the First Call mean estimate of $0.19... Computer component maker Adaptec Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %> slipped $2 5/16 to $23 5/16 after announcing yesterday that it would acquire Symbios Inc., a semiconductor subsidiary of Hyundai Electronics America, in an deal valued at $775 million.

Heating control device manufacturer Research Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RESR)") else Response.Write("(Nasdaq: RESR)") end if %> fell $1 to $5 1/8 after announcing yesterday that it would combine its control systems business with its thermal solutions division and reduce its workforce. The restructuring will result in a one-time charge of about $600,000 to Q2 earnings... Remote data exchange products maker Puma Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PUMA)") else Response.Write("(Nasdaq: PUMA)") end if %> lost $13/16 to $6 1/2 despite reporting fiscal Q2 EPS of $0.03, which was in line with the First Call consensus estimate... Wireless messaging systems provider Centigram Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGRM)") else Response.Write("(Nasdaq: CGRM)") end if %> dropped $1 5/16 to $12 3/4 after reporting a fiscal Q1 loss of $0.85 per share, which was wider than the loss of $0.57 per share forecast by analysts surveyed by First Call. The company blamed the loss on the delay of a few large orders by customers in Asia and Latin America and weakness in its customer premises equipment business.

[Clarification: On February 13, we reported on a $3 1/2 per share drop in the value of Ameron International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMN)") else Response.Write("(NYSE: AMN)") end if %> shares and an SC 13G filing by mutual fund Neuberger & Berman. The company believes that the drop that day was related to the sale of a 225,000-share block by an individual shareholder.]

FOOL ON THE HILL
An Investment Opinion
by Jim Surowiecki

Steelcase Looks Strong

If the injunction "Invest in what you know" means anything, then office workers and future telecommuters across America should be snapping up shares of office-furniture maker Steelcase <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCS)") else Response.Write("(NYSE: SCS)") end if %>, which went public on Wednesday at $28 a share and has already seen its stock price jump nearly 25%. Steelcase, based in Grand Rapids, Mich., which is America's leading furniture-making center, floated 12.15 million shares, approximately a tenth of all those outstanding, and raised $340 million from the initial public offering (IPO), all of which will go to fund charitable trusts established by the families that own the company.

Steelcase is one of those classic American companies that found a niche early on and has remained relatively faithful to it ever since. Founded in 1912, the company's roots -- as its name suggests -- are in the metal furniture business. The heavy metal desks and chairs that you see in old movies or, occasionally, in today's public schools were often made by Steelcase. The company has expanded its product lines over the years, and now offers entire lines of cabinets, frames, cubicles, and shelving for the business market. In recent years, Steelcase has tried to compete more aggressively for the high-end market as well, emphasizing its design abilities. After a series of difficult years in the early 1990s when its business was hit particularly hard by the recession, the company has made an impressive return to profitability.

Office furniture seems like it should be a low-growth cyclical market in which the threat of commoditization would be omnipresent. But, while the market is clearly dependent on the continued health of the economy, office furniture sales grew 7% annually between 1994-1996 and jumped 15% in the first nine months of last year, to $8.5 billion. And the major industry players -- Steelcase, Herman Miller <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MLHR)") else Response.Write("(Nasdaq: MLHR)") end if %>, and Haworth -- have actually been taking larger and larger shares of the office furniture business. (Steelcase is the biggest player in the U.S., with about 20% of the market.)

More importantly, new trends in workplace design and in working arrangements bode well for Steelcase. The growing importance of team structures -- as opposed to more traditional hierarchies -- and more flexible office spaces means that many businesses will be shopping for new furniture. At the same time, the rapid increase in the number of telecommuters -- a small but potentially explosive market -- means that the demand for home offices should rise sharply in the near future. Steelcase appears to have positioned itself well to take advantage of both of these developments by expanding product lines and increasing R&D by substantial amounts in each of the last three years.

Steelcase manufactures most of its products itself in 46 plants scattered around the globe, which means that its fixed-capital costs are high and that it's not as well-equipped to deal with downturns as companies that outsource more of their production. At the same time, gross margins have improved sharply over the last three years, from 29% in fiscal 1995 to 36% in fiscal 1997. More impressively, although expenses have risen slightly over the same period of time, operating margins have shown dramatic improvement, to 13% in the last reporting period. Herman Miller, Steelcase's nearest competitor, has turned in a similar performance, with gross margins around 36% and operating margins hovering around 11%.

Steelcase's earnings for the year just past were down sharply, but those numbers reflected a $212 million charge for damages and interest that the company paid to Haworth after losing a patent-litigation fight. Without the charge, the company would have earned $239 million last year, which means earnings were up 93% over 1996, even as revenues rose around 15%. At a current market cap of $4.1 billion, the stock is trading at a P/E of 17, which is less than that of its competitors (Herman Miller has a P/E of 28) and slightly below expected growth in earnings per share over the next three years.

The mundaneness of the office furniture business means that Steelcase does not arrive with all of the hoopla that accompanies an Internet stock or a company that's just designed thin-client computer technology for office networks. But just as investments in computer hardware companies are, in a sense, wagers on the continued growth in business' demand for new technology, an investment in an office furniture company is a wager on continued changes in the way business deploys and implements that technology in a physical sense. Someone, in the end, has to build the infrastructure, the desks upon which the computers rest, and the chairs in which those techies sit. And as the reaction to Wednesday's IPO suggests, Steelcase is a company well-positioned to be a major player in the construction of that infrastructure.

CONFERENCE CALLS

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Dale Wettlaufer (TMF Ralegh), Fool
Alex Schay (TMF Nexus6), Fool
Yi-Hsin Chang (TMF Puck), Fool
Brian Graney (TMF Panic), Fool
Jim Surowiecki (TMF Cinder), Fool
Contributing Writers

Brian Bauer (TMF Hoops), Fool
Editor