DJIA 9132.37 -39.11 (-0.43%) S&P 500 1114.64 -4.42 (-0.39%) Nasdaq 1820.99 -10.76 (-0.59%) Value Line ndx 970.20 -0.86 (-0.09%) 30-Year Bond 102 25/32 -14/32 5.92% Yield
Beverage company and movie studio operator Seagram Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VO)") else Response.Write("(NYSE: VO)") end if %> picked up $3 3/4 to $44 3/4 after agreeing to buy music company PolyGram N.V. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLG)") else Response.Write("(NYSE: PLG)") end if %> for $10.5 billion in cash and stock, as was widely anticipated. PolyGram will expand the firm's music presence, which already includes artists such as The Wallflowers and Beck. The surprise of the day, however, was news from CNBC that Seagram plans to eventually sell all of its Tropicana orange juice division to the public. Tropicana is the dominant player in the orange juice market, controlling 40% of the chilled O.J. segment and 70% of the not-from-concentrate juice market, according toThe Wall Street Journal. Combined with spirits such as Absolut Vodka and Captain Morgan rum, Seagram's beverages currently account for 53% of total revenues. To listen to the replay of Seagram's press conference today on the Polygram acquisition, call 1-800-475-6701 and then enter access # 392043.
Whitman Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WH)") else Response.Write("(NYSE: WH)") end if %> tacked on $7/8 to $22 after Morgan Stanley Dean Witter raised its rating on the bottler and distributor of PepsiCo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> products to "strong buy" from "outperform." The upgrade comes on the heels of an article in The Wall Street Journal that suggested Pepsi is considering consolidating and then spinning off part of its wholly owned bottling operations, known as COBO. The transaction would mimic Pepsi archnemesis Coca-Cola's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> 1986 partial spin off of Coca-Cola Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCE)") else Response.Write("(NYSE: CCE)") end if %>, which bottles roughly two-thirds of Coke's domestic soft drinks. A similar move by Pepsi would likely give Whitman a larger piece of the Pepsi pie, according to analysts. Moreover, Pepsi owns a 20% stake in Whitman's Pepsi-Cola General Bottlers, giving it a vested interest in Whitman's fortunes going forward.
QUICK TAKES: Number-two U.S. automaker Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> picked up $1 7/8 to $51 1/8 after CFO John Devine told analysts yesterday that their Q2 earnings estimates are too low by about $0.10 per share. The First Call mean estimate for the quarter is currently $1.66 per share... Internet content aggregator Excite Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> gained $13/16 to $61 after receiving and subsequently rejecting a merger offer from fish oil processing and food service firm Zapata Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZAP)") else Response.Write("(NYSE: ZAP)") end if %>. While Zapata said Excite would be an "excellent fit," Excite called the proposal "not feasible" and "of no possible value" to its shareholders... High-speed voice and data transmission products maker ADC Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADCT)") else Response.Write("(Nasdaq: ADCT)") end if %> rose $1 11/16 to $31 after reporting Q2 EPS of 0.25, which was in line with the Street's mean estimate. Merrill Lynch raised its short-term rating on the stock to "buy" from "accumulate."
Action Performance <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACTN)") else Response.Write("(Nasdaq: ACTN)") end if %> was lifted $1 5/8 to $30 1/4 after Wheat First Union started coverage of the maker of die-cast race cars and collectibles with a "buy" rating... The resignation of Indonesian president Suharto yesterday and the possibility of a peaceful end to the political upheaval in that country pushed up shares of Freeport McMoran Copper & Gold <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCX)") else Response.Write("(NYSE: FCX)") end if %> $11/16 to $17 3/8. A unit of Freeport operates the huge Grasburg copper mine in Indonesia... Providian Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PVN)") else Response.Write("(NYSE: PVN)") end if %> added $2 5/8 to $65 3/4 after Merrill Lynch started coverage of the consumer lending company with a "buy" rating... Business application software developer Open Market <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMKT)") else Response.Write("(Nasdaq: OMKT)") end if %> gained $1 15/32 to $15 7/8 after BT Alex. Brown started coverage of the firm with a "market perform" rating. The company also signed an agreement to provide Internet commerce services to clients of accounting firm Coopers & Lybrand LLP.
Semiconductor and cellular phone manufacturer Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> moved $9/16 higher to $55 5/16 after signing a deal with privately held Teledesic to provide satellite-based broadband Internet access by 2003. Motorola will invest $750 million in Teledesic, giving it a 26% stake in the firm... Broadvision Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BVSN)") else Response.Write("(Nasdaq: BVSN)") end if %> rose $2 31/32 to $19 1/4 after BT Alex. Brown raised its rating on the enterprise application software company to "strong buy" from "buy"... The Bibb Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BIB)") else Response.Write("(AMEX: BIB)") end if %> picked up $1 5/8 to $11 1/4 after Prudential upgraded the maker of sheets, pillowcases, and other textiles to "buy" from "hold"... Satellite radio systems developer CD Radio <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDRD)") else Response.Write("(Nasdaq: CDRD)") end if %> rose $1 5/8 to $41 1/2 after appointing four new executives, including two from hotel and casino operator ITT Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> and one from Viacom's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VIA)") else Response.Write("(NYSE: VIA)") end if %> MTV Networks unit.
Spanish language TV programmer Grupo Televisa S.A. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TV)") else Response.Write("(NYSE: TV)") end if %> moved up $2 1/16 to $40 5/8 after Merrill Lynch raised its short-term rating to "buy" from "accumulate"... Enterprise storage systems designer and Year 2000 problem solver Zitel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZITL)") else Response.Write("(Nasdaq: ZITL)") end if %> rose $1 9/16 to $8 3/4 after striking a deal to outsource the manufacturing of its storage subsystems to Hitachi Computer Products (America)... PharMerica Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DOSE)") else Response.Write("(Nasdaq: DOSE)") end if %>, which provides pharmacy services to long-term care facilities, advanced $1 to $12 after announcing a pilot program with post-acute healthcare services provider Beverly Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEV)") else Response.Write("(NYSE: BEV)") end if %> to adapt to Medicare's new prospective payment (PPS) reimbursement system... VeriSign Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRSN)") else Response.Write("(Nasdaq: VRSN)") end if %> advanced $1 1/2 to $37 3/4 after Dain Rauscher Wessels upgraded the maker of products to transmit secure information over the Internet to "strong buy" from "buy."
Independent oil refining and marketing firm Valero Energy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VLO)") else Response.Write("(NYSE: VLO)") end if %> rose $1 7/8 to $33 7/8 after the company agreed to buy a refinery in Paulsboro, N.J. from integrated oil company Mobil Oil <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOB)") else Response.Write("(NYSE: MOB)") end if %> for $228 million in cash and $108 million for inventories and working capital... Cable TV operator Cable Michigan <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CABL)") else Response.Write("(Nasdaq: CABL)") end if %> gained $1 1/2 to $36 3/4 after announcing it has retained Merrill Lynch to consider "strategic alternatives," including a possible merger... Teenage clothing direct marketer dELia*s Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DLIA)") else Response.Write("(Nasdaq: DLIA)") end if %> moved up $5 1/4 to $27 1/4 after saying its recently launched online store accounted for 2% to 3% of the company's total catalog sales during its first two weeks... Canadian broadband telecommunications services firm MetroNet Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: METNF)") else Response.Write("(Nasdaq: METNF)") end if %> picked up $1 1/4 to $27 3/4 after agreeing yesterday to buy the telephone business of Canadian cable company Rogers Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RG)") else Response.Write("(NYSE: RG)") end if %> for about $690 million in cash and stock. Rogers was up $3/4 to $8 3/16.
Earnings Movers
Accelr8 Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACLY)") else Response.Write("(Nasdaq: ACLY)") end if %> up $2 7/16 to $15 3/4; Q3 EPS: $0.14 vs. $0.05 last year; Estimate: $0.13
Charming Shoppes <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRS)") else Response.Write("(Nasdaq: CHRS)") end if %> up $9/16 to $5 7/16; Q1 EPS: $0.02 (excluding restructuring charge) vs. $0.02 loss last year; Estimate: $0.01 loss
Eagle Hardware & Garden <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EAGL)") else Response.Write("(Nasdaq: EAGL)") end if %> up $31/32 to $17 21/32; Q1 EPS: $0.21 vs. $0.16 last year; Estimate: $0.20
Just For Feet <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FEET)") else Response.Write("(Nasdaq: FEET)") end if %> up $2 15/32 to $22 13/32; Q1 EPS: $0.19 vs. $0.18 last year; Estimate: $0.19
Loehmann's Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LOEH)") else Response.Write("(Nasdaq: LOEH)") end if %> up $1 11/16 to $6 3/16; Q1 EPS: $0.19 vs. $0.04 last year; Estimate: $0.02
Optical Coating Laboratory <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OCLI)") else Response.Write("(Nasdaq: OCLI)") end if %> up $2 1/4 to $16 7/8; Q2 EPS: $0.25 vs. $0.13 last year; Estimate: $0.18
Sunglass Hut International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAYS)") else Response.Write("(Nasdaq: RAYS)") end if %> up $5/8 to $12 3/16; Q1 EPS: $0.07 vs. $0.01 last year; Estimate: $0.05
Vlasic Foods International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VL)") else Response.Write("(NYSE: VL)") end if %> fell $2 9/16 to $21 11/16 after warning that it expects third and fourth quarter earnings before charges to fall short of analysts' expectations, though it remains "fully confident" it can achieve previously announced goals for next year. The bulk of the earnings shortfall will happen in the fourth quarter, which should come in at or near breakeven before one-time charges. Vlasic, the recent $1.5 billion spin-off from Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %>, attributed the shortfall to higher-than-anticipated transition costs, a higher tax rate -- 50% instead of 41% -- due to weaker foreign earnings, lower sales of its Swanson frozen food and Vlasic pickles, and the company's efforts to align shipments with consumption data. Since Campbell dumped Vlasic in March to devote its efforts to its higher margin, high growth soup, sauces, and cookies businesses, Vlasic has had the deck stacked against it. Vlasic also left with a parting gift from Campbell -- about $500 million in debt. Still, the company remains optimistic. Vlasic said it is "very excited" by the progress it has made on cutting costs and building its brands and that it is "revving the engines for accelerating growth in 1999 and beyond."
Manugistics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MANU)") else Response.Write("(Nasdaq: MANU)") end if %>, which develops software for supply chain management in manufacturing, plunged $8 7/8 to $47 7/8 in extremely heavy trading on concern that the company may fall short of analysts' expectations in its first quarter ending May 31. Analyst Christopher Mortenson of BT Alex. Brown reiterated his "strong buy" rating on the company but warned that Manugistics might have trouble closing enough orders to meet expectations because it is winning larger contracts, which require more time to close. Investors took the warning to heart because it came from BT Alex. Brown, which underwrote Manugistics' public offerings in 1993 and 1997 and is among the leading traders of the company's shares. Mortenson called the possible shortfall a "one-time event" and said he remained confident about the company's long-term performance.
QUICK CUTS: Dell <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> led several computer companies downward today on concern about declining PC prices. The No.1 PC direct seller's shares, which lost $4 11/16 to $87 1/16, had risen about 5% over two days prior to its earnings report on Tuesday, and even though it beat analysts' estimates, some investors had expected even higher earnings growth. Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, dropped $1 1/16 to $28 1/2 and Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>, which also announced 10% to 25% price cuts on its HP 8510 vector network-analyzer product family, fell $1 to $64 7/8... Pharmaceutical company Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> shed $3 11/16 to $109 1/8 on news that it will reiterate warnings about the danger of combining its popular impotence drug, Viagra, with organic nitrates such as the angina drug nitroglycerin.
Internet browser and software company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> dipped $1 to $26 3/8 after The New York Times reported that many analysts predict that the U.S. government's efforts to protect the company from the onslaught of Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Windows operating system and Internet Explorer browser will prove to be futile... Entertainment software developer Midway Games <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWY)") else Response.Write("(NYSE: MWY)") end if %> lost $2 5/8 to $13 1/4 after announcing it expects Q4 EPS will be about $0.25, compared with $0.29 (before unusual items) for the year-ago period... Marketing company Snyder Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNC)") else Response.Write("(NYSE: SNC)") end if %> slid $2 /12 to $39 1/2 after pricing its secondary offering of shares at $42 a share, the same as yesterday's closing.
Oil stocks slipped today as more signs emerged that oil prices won't be heading north any time soon. Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %>, the nation's largest oil company, lost $11/16 to $70 9/16; Mobil <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOB)") else Response.Write("(NYSE: MOB)") end if %> fell $1 7/16 to $79 3/16; and Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHV)") else Response.Write("(NYSE: CHV)") end if %> dropped $3/4 to $80 3/4... NeoTherapeutics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEOT)") else Response.Write("(Nasdaq: NEOT)") end if %> plunged $6, or 31.17%, to $13 1/4 after more than doubling in price yesterday as the biotechnology company issued a statement clarifying comments attributed to the company's CEO on its experimental drug for Alzheimer's. The company stated that because of the small number of patients involved in its preliminary trials, any conclusions about the drug's effectiveness will have to wait until further tests are conducted on a larger number of patients.
The Home Decor Marketplace operator Garden Ridge Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRDG)") else Response.Write("(Nasdaq: GRDG)") end if %> dropped $2 3/4 to $19 3/4 after reporting Q1 EPS of $0.06 compared with $0.03 in the prior-year quarter... Data storage management software company MTI Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTIC)") else Response.Write("(Nasdaq: MTIC)") end if %> fell $1 1/2 to $13 1/2 after reporting Q4 EPS of $0.19 compared with $0.08 for the year-earlier period... Active-casual footwear company Vans Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VANS)") else Response.Write("(Nasdaq: VANS)") end if %> tripped 5/8 to $9 9/16 after yesterday's announcement that it will take a fourth quarter after-tax restructuring charge of $0.82 a share and that Q4 earnings will be breakeven or slightly positive. Hibbett Sporting Goods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HIBB)") else Response.Write("(Nasdaq: HIBB)") end if %> was down $2 1/2 to $34 1/2 after Adams Harkness & Hill downgraded the sporting goods retailer to "attractive" from "buy" on valuation concerns.
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
Hadco's Value
The largest publicly traded printed circuit board (PCB) manufacturer in North America, Hadco Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDCO)") else Response.Write("(Nasdaq: HDCO)") end if %> sank $1 9/16 to $34 7/16 today after posting second quarter results at the close of trading yesterday. Second quarter earnings came in at $0.51 per share (before charges), which was lower than the Zacks mean estimate of $0.65 but higher than the IBES estimate of $0.50, and in line with the company's own early April projections. Including non-recurring charges related to the consolidation of its East Coast Tech Center facilities and the write-off of in process R&D related to its acquisition of Continental Circuit Corp., Hadco reported a net loss of $4.54 per share.
For the last couple months Hadco has been hovering at a level far below its zenith of $75 5/8 achieved in July of last year, and by all surface appearances the company's current valuation seems justified. However, most of the time, surface appearances serve only to bring the viewer and his anxieties into sharper focus, rather than the object of inquiry. Lying at the very heart of the much abused "contrarian" moniker is the notion that investors can make money in situations where the prevailing market view on a particular company is wrong. Hadco may just be one of those companies.
Hadco is involved in the manufacture of all manner of printed wire boards, which prompts investors to whip out the dreaded "commodity" label and tack it onto the company's shares. In actuality, 11% of Hadco's revenue mix in 1997 consisted of high-margin backplanes, a business line that the firm only entered about one year ago (but is rapidly growing). Backplanes are large printed circuit boards used to connect all of the electronics in a device. The ubiquitous "mother board" is a garden variety type of backplane, but really, true backplanes are the 48" X 48" (or even 60" X 60") monsters that go into mainframes, minicomputers, high-end servers, telco equipment, and large network equipment.
The specialized manufacturing equipment required to make the boards, in conjunction with value-added assembly, make for high margins and a smaller overall market in comparison with PCBs. Understandably, the growth for this segment is twice that of the overall PCB market at 15-20%. As for the rest of Hadco's revenues, its high margin "quick-turn" business constituted 15% of revenues in 1997 -- a segment that fulfills orders within anywhere from 24 hours to 3, 5, or 7 days -- and advanced chip carrier products accounted for 2%. The rest of Hadco's revenues came from (and come from) high volume production of PCBs. In the most recent quarter, Hadco had an overall base of 550 customers, with the top ten customers accounted for 48% of its revenues (with Cabletron and Compaq numbers two and three, contributing to the hand-wringing).
It is important to note that a significant percentage of these PCBs are high layer boards, which are more insulated from price competition than their less-layered counterparts. A widespread fear among investors is PCB pricing pressure exported from Asian manufacturers, a fear that has materialized at the 8-layer level and below, which has somewhat insulated Hadco thus far. Overall, investors have yet to recognize the dramatic changes that consolidation and outsourced electronics manufacturing (ECMs) have wrought. The new world of PCB manufacturing will favor the large, worldwide players that can service ECMs anywhere (with better economics) and that have the ability to make sufficient R&D investments to develop increasingly sophisticated and proprietary manufacturing techniques. Thanks to a number of recent acquisitions, Hadco is well on its way to becoming one of the first, truly global players.
In terms of valuation, Hadco trades at 13 times 1999 EPS estimates of $3.55, but a pure earnings analysis is not a valuable metric when evaluating Hadco. Due to the company's substantial amortization, EPS growth investors have been blinded to the company's true value. Hadco currently trades at 5.8 times trailing cash flow, or earnings before interest, taxes, depreciation and amortization (EBITDA), which in light of the company's 16.5% EBITDA margins (that are closer to pure backplane manufacturers than PCB companies) makes for a cheap valuation. In addition, the company trades at a sales-to-enterprise value ratio of 0.61, which is also a substantial discount to the 0.85 average for the PCB companies. It would seem that despite Hadco's 6x interest coverage, investors are unduly worried about its debt load.
In the company's second quarter conference call [replay available at 1-800-633-8284 ref. # 425 7495], it revealed that capacity utilization was down to 80% (1% below estimates), and that pricing in the backlog coming into the third quarter was 6% lower than in the second quarter. Today's drop reflects investor's doubts about the company's ability to make up the lost business by means of its quick-turn segment. Individual investors with a long-term time horizon may want to take a closer look and challenge the doubters.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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