DJIA 8813.01 -16.45 (-0.19%) S&P 500 1106.37 -0.73 (-0.07%) Nasdaq 1772.71 -3.69 (-0.21%) Value Line ndx 924.19 -7.77 (-0.83%) 30-Year Bond 106 +21/32 5.70% Yield
Tobacco powerhouse Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> powered up $1 1/8 to $39 9/16 after the Senate effectively killed the proposed tobacco bill that would have raised the price of cigarettes by at least $1.10 a pack over five years, allowed government regulation of nicotine, and restricted advertising and marketing of cigarettes. The bill was sent back to the Senate Commerce Committee where it started, but committee chairman and the bill's author Senator John McCain said he's not planning to do a rewrite to get the bill passed. President Bill Clinton and Senate Minority Leader Tom Daschle both vowed to keep the issue alive, and some Democrats said they will attach the issue as an amendment to unrelated legislation, though many believe the legislation was killed this time around because it was thrown into a package including unrelated issues such as revising tax structures that penalize married couples. Several brokerages upgraded their ratings on Philip Morris including Merrill Lynch, which raised its near-term rating to "accumulate" from "neutral." Goldman Sachs kept its "recommend list" rating. RJR Nabisco Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> inched up $3/4 to $25 1/16.
Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> gained $5/8 to $35 1/8 after announcing that Walt Disney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> will take a 43% stake (about 25.8 million shares) in the Internet navigation company in exchange for $70 million in cash and the majority stake Disney owns in website design company Starwave Corp. Infoseek will issue around 3 million more shares to acquire the remaining Starwave shares Disney doesn't already own. Disney also will purchase warrants that would guarantee a strike price at a 20% premium to Infoseek's stock price and would give the media and entertainment giant a majority stake in the company. Disney and Infoseek plan to jointly launch a new Internet portal later this year that would integrate Infoseek services with the Disney brand -- Mickey Mouse and all -- and Disney's ABCNEWS.com and ESPN.com, for which Starwave produces original programming. Disney's investment in Infoseek, which comes shortly after General Electric's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> NBC network's recent investment in CNET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNWK)") else Response.Write("(Nasdaq: CNWK)") end if %>, pushed up shares of some other Internet companies. Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> rose $2 9/16 to $27 15/16, Spyglass <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPYG)") else Response.Write("(Nasdaq: SPYG)") end if %> tacked on $1/2 to $11 1/16, and Lycos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> jumped $2 1/8 to $61 5/8.
QUICK TAKES: Following the announcement yesterday that it will cut about 525 jobs over the next 18 months at its headquarters in Oak Brook, Ill., McDonald's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %> gained $2 7/16 to $67 7/8 as Goldman Sachs raised its rating on the fast-food giant to "market outperform" from "market perform"... Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> fizzed up $1 1/16 to $81 3/8 after announcing that its non-carbonated beverages are the fastest growing in their individual market segments. Cool from Nestea has grown at twice the rate of the tea category, PowerAde's growth was four times the sports drink category, and the company's juice products -- led by Fruitopia and Minute Maid juices -- grew 17 times the overall category... Electronics and semiconductor maker Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> jumped $3 5/8 to $54 1/2 after BancAmerica Robertson Stephens raised its rating on the company to "buy" from "long-term attractive," though it cut TI's 1998 EPS estimate to $1.80 from $2.10.
Drug maker Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> added $2 1/8 to $114 3/8 after the U.K.'s Independent newspaper reported that the company's male impotence pill Viagra will be made available on Britain's state-funded National Health Service once it is granted a U.K. license... Comcast Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMCSK)") else Response.Write("(Nasdaq: CMCSK)") end if %> advanced $1 5/8 to $37 11/16 after announcing a quarterly cash dividend of $0.0233 per share to be paid on September 24... Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %>, the world's leading provider of database software and number-two independent software firm, rose $5/16 to $24 5/8 thanks to a slightly better-than-expected Q4 that capped a disappointing fiscal '98... Arco Chemical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RCM)") else Response.Write("(NYSE: RCM)") end if %> was lifted $6 1/2 to $57 1/16 after its parent company Atlantic Richfield <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARC)") else Response.Write("(NYSE: ARC)") end if %> confirmed a Wall Street Journal report that it is negotiating to sell its entire 80 million share stake in Arco Chemical to Lyondell Petrochemical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LYO)") else Response.Write("(NYSE: LYO)") end if %>.
Vitamins and nutritional products maker Rexall Sundown <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RXSD)") else Response.Write("(Nasdaq: RXSD)") end if %> picked up $3 1/8 to $35 11/16 after reporting Q3 EPS of $0.26, up from $0.13 a year earlier and higher than the $0.24 mean estimate listed by First Call... Applications enablement technology and services company Intersolv Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISLI)") else Response.Write("(Nasdaq: ISLI)") end if %> jumped $1 11/16 to $16 3/16 after announcing it has agreed to be acquired by enterprise applications management company Micro Focus Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIFGY)") else Response.Write("(Nasdaq: MIFGY)") end if %> for about $534 million in stock. Micro Focus dropped $8 1/8 to $33 7/8... Slim Jim maker GoodMark Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GDMK)") else Response.Write("(Nasdaq: GDMK)") end if %> surged $5 9/16 to $30 1/16 after agreeing to be acquired by Omaha-based international food company ConAgra <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAG)") else Response.Write("(NYSE: CAG)") end if %>. The stock-swap transaction values GoodMark at $30 per share.
Computer adapter cards manufacturer Adaptec Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %> rose $1 1/4 to $15 9/16 on news it is supplying CD recording software for Philips Electronics' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %> kit that can record and record on a CD... Connecticut-based bank holding company NSS Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSSY)") else Response.Write("(Nasdaq: NSSY)") end if %> shot up $9 3/8 to $55 1/4 after announcing it has agreed to be acquired by Summit Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SUB)") else Response.Write("(NYSE: SUB)") end if %> in a deal valued at $139.6 million, or $58.83 per NSS share. NSS shareholders will receive 1.232 Summit shares for each NSS share... Camco International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAM)") else Response.Write("(NYSE: CAM)") end if %> charged up $5 3/4 to $62 1/4 before trading was halted this afternoon on renewed speculation that it will be taken over by another oilfield equipment and services company, possibly Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %>, which lost $2 3/4 to $69 15/16.
Radio frequency components maker RF Monolithics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RFMI)") else Response.Write("(Nasdaq: RFMI)") end if %> advanced $1 3/8 to $11 after reporting Q3 EPS of $0.24, up from $0.20 a year ago and ahead of analysts' mean estimate of $0.22... Nursing home operator Vencor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VC)") else Response.Write("(NYSE: VC)") end if %> was up $3/4 to $7 3/4 after announcing it will save $100 million a year through job cuts... Healthcare information networks company Daou Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DAOU)") else Response.Write("(Nasdaq: DAOU)") end if %> jumped $2 5/16 to $18 3/8 after Loewenbaum & Co. reiterated its "strong buy" rating on the company.
Fast-food pizza restaurant operator Sbarro Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBA)") else Response.Write("(NYSE: SBA)") end if %> was tossed for a $2 7/16 loss to $26 5/8 after talks with the Sbarro family regarding a proposed $28.50 per share buyout offer broke down due to differing views on how the company's board would be reconfigured. The company said it will continue to examine other means of increasing shareholder value, opening up the possibility of another offer from a third party. The deal somewhat resembled the failed attempt by Joseph Crugnale, the founder and CEO of Bertucci's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BERT)") else Response.Write("(Nasdaq: BERT)") end if %>, to take his equally troubled pizza chain private earlier this year. Despite the failed bid, the Sbarro family still holds a 35% stake and has considerable say in the company's future. Three members of the family hold top-level executive positions at the company, including chairman Mario Sbarro.
Fault tolerant computer systems company Stratus Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRA)") else Response.Write("(NYSE: SRA)") end if %> lost $7 3/4 to $24 3/4 after saying it expects to report a fiscal Q2 loss of about $0.42 per share due to the Asian financial crisis and the recent depreciation of the Japanese yen. Analysts had been expecting Stratus to earn $0.73 per share in the quarter. Revenues are expected to come in at $134.4 million, 20% below last year's levels. The loss includes a $10 million charge for some canceled projects and inventory purchased specifically for Asian markets. Intervention by U.S. monetary authorities has brought the dollar-yen exchange rate down over the past two days, but the damage from the greenback's steady appreciation during the quarter is already starting to be felt by companies and could be blamed for shortfalls at other companies in the days ahead. Perhaps also a cause of the company's miss is increased competition from NCR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NCR)") else Response.Write("(NYSE: NCR)") end if %>. Recently, Diebold Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DBD)") else Response.Write("(NYSE: DBD)") end if %> announced an earnings miss that it chalked up to Asian problems but that also may be due to the renewed vigor of the now-independent NCR, which was spun off from AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> last year.
Several oil drilling and services companies fell after oil prices sank due to concerns over storage capacity. Today, oil futures traders unloaded contracts scheduled to expire after tomorrow's quarterly "triple-witching" to avoid taking delivery of the commodity anytime soon. The New York Mercantile Exchange's storage facility in Cushing, Oklahoma is already close to its 20 million barrel capacity, meaning July contract holders would have to arrange storage for their oil after tomorrow. The problem is the latest in a series of challenges that have confronted the oil industry during a worldwide oil glut. Rowan Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDC)") else Response.Write("(NYSE: RDC)") end if %> slid $1 1/16 to $20 5/8, R&B Falcon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> fell $1 1/4 to $22 3/8, EVI Weatherford <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EVI)") else Response.Write("(NYSE: EVI)") end if %> dropped $2 11/16 to $35, Halliburton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> lost $1 3/8 to $42 3/8, and Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> slipped $2 13/16 to $69 7/8.
QUICK CUTS: Telecommunications equipment and services provider Andrew Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANDW)") else Response.Write("(Nasdaq: ANDW)") end if %> fell $1 3/8 to $18 1/4 after saying late yesterday that its fiscal Q3 earnings will fall short of analysts' expectations. Greg Markus took a closer look at Andrew's warning in yesterday's Boring Portfolio column... PC, server, and printer maker Hewlett-Packard Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> slipped $1 13/16 to $56 11/16 after Gruntal & Co. raised its rating to "strong buy" from "buy" but lowered the company's fiscal 1998 earnings estimate to $2.95 per share from $3.10 per share... IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> dropped $2 3/16 to $108 13/16 after Goldman Sachs removed the computer giant from its "global priority list" while keeping the stock on its "U.S. recommended list"... U.S. carmaker Chrysler <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> fell $1 9/16 to $53 1/2 after being downgraded by Morgan Stanley Dean Witter.
Home furnishings retailer Pier 1 Imports <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PIR)") else Response.Write("(NYSE: PIR)") end if %> dropped $1 9/16 to $20 3/8 after chairman and CEO Clark Johnson said yesterday he would step down... Computer workstations and network computing products maker Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> was burned for $1 1/2 to $42 1/8 after Goldman Sachs cut its fiscal Q1 EPS estimate to $0.48 from $0.50... Graphics accelerator chipset maker 3Dfx Interactive <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDFX)") else Response.Write("(Nasdaq: TDFX)") end if %> slumped $2 to $16 after NationsBanc Montgomery Securities downgraded the company to "hold" from "buy." Analyst Jonathan Joseph told Bloomberg News that Diamond Multimedia Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIMD)") else Response.Write("(Nasdaq: DIMD)") end if %> has scaled back orders, which will impact fiscal Q3 results.
Telecommunications support software firm Evolving Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EVOL)") else Response.Write("(Nasdaq: EVOL)") end if %> sank $5 3/4 to $9 1/2 after saying it expects a fiscal Q2 loss before charges of between $0.06 and $0.11 per share. The Street had been expecting earnings of $0.05 per share... Video editing software provider Avid Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVID)") else Response.Write("(Nasdaq: AVID)") end if %> slid $4 5/16 to $28 7/16 after Piper Jaffray downgraded the company to "neutral" from "buy"... Sealed Air Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEE)") else Response.Write("(NYSE: SEE)") end if %> sprung a leak and lost $2 1/4 to $38 1/4 after Morgan Stanley Dean Witter downgraded the specialty packaging company to "neutral" from "outperform." Yesterday, the company warned it would miss analysts' estimates for fiscal Q2 earnings... Air transport company AirNet Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANS)") else Response.Write("(NYSE: ANS)") end if %> fell $4 11/16 to $16 5/16 after terminating its proposed merger with privately held Q International Courier Inc. because of "differences in management approaches."
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
Cash or Charge?
Over the last five years consumers have voted almost unanimously that credit cards are the way to go, and one of the unsung heroes of this modern commerce movement has been the transaction processor. The speedy authorization element -- which is part of the "front-end" of these services -- is what prevents us from having to wait too long at the checkout counter of the grocery store when paying with plastic. Unless, of course, people swipe the front of the card, or miss the magnetic strip entirely, or can't find the "enter" key to accept the transaction, or start thinking the point of service (POS) terminal is a complex "computer," subject to explode if an entry error is made. Then the delays begin.
However, "human error" aside, technological developments over the last couple of years have made merchant acceptance of credit cards faster, more convenient, and less costly. The costs to merchants on a per transaction basis have gone down with the advent of full electronic processing, which has simultaneously reduced the margins of processors and allowed small and medium sized businesses to get the same level of service previously afforded only large companies, offsetting the margin erosion with sheer volume.
Today, two of the fastest growing merchant processors decided to merge. Merchant bankcard processing services company PMT Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMTS)") else Response.Write("(Nasdaq: PMTS)") end if %> climbed $2 5/16 to $22 15/16 after announcing it has agreed to be acquired by merchant card processor NOVA Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NIS)") else Response.Write("(NYSE: NIS)") end if %> for about $1.3 billion, or a 22% premium to yesterday's closing price. NOVA dropped $1 1/4 to $33 15/16 amid fears that the combined entity will grow at a slower rate than the two companies could grow independently. Zacks has EPS estimates for NOVA at $0.76 in 1998 and $1.20 in 1999, with a projected five-year compound growth rate of 33.8%. PMT Services is set to earn $0.61 per share in 1998 and $0.80 per share in 1999, with an estimated five-year growth rate of 28.3%. With the initial year-over-year earnings growth disparity at 57% versus 31%, some see PMT dragging NOVA down. A closer look at how the processors actually make money goes a long way toward dispelling this notion.
Transaction processors are often placed in one ring under the big-top known as Data Services. Companies in this five ring circus are broadly categorized as: (1) Information technology outsourcing services; (2) Electronic commerce and Internet services; (3) Data enhancement and collection services; (4) Teleservices; and (5) Processing and transaction services. As with any organizing scheme, many companies cross the artificially imposed boundaries into multiple service areas, but most can be further defined by their interest in vertical markets, such as payroll processing, healthcare data processing, service companies, credit card processing services, data center outsourcing, and information processing. Due to predictable business models that incorporate highly visible recurring revenue streams (75%-90% contractual revenues), Data Services have often been grouped under the moniker, "the food stocks" of high tech, or "the Coke and Pepsis of technology."
Front office processing includes authorization and settlement functions between the merchant and the card association (VISA/Mastercard), whereas back office processing involves posting transactions to cardholder accounts and preparing and shipping monthly statements to cardholders. Therefore, credit and debit processing companies serve two primary masters, card issuing institutions and card accepting merchants. So, let's follow the money on the front end:
(1) Front office processors charge the merchant a "discount," which is a euphemism for a percentage of each sale, as well as a small flat fee per transaction charge (although sometimes this is not the case).
(2) Once merchant processors get this money, they have to pay out "interchange fees" to the card issuers and "assessment fees" to the card association. This makes revenue recognition a touchy issue. Investors should know that it can be reported as: gross revenues, including interchange and third-party fees, or net revenues, which exclude interchange and third-party fees. Knowing which type of revenue is being reported affects margin calculations.
(3) Merchant processors may also have to pay service charges to third parties for the provision of a network or for merchant accounting services.
NOVA Corp. is a merchant card processing company that targets small and medium-sized merchants. The company has developed a proprietary telecommunications network -- imaginatively called the NOVA network -- as well as a back office processing platform to provide card authorization, settlement, accounting, and clearing services. NOVA pursues a unique marketing approach by partnering with banks to become the exclusive provider of transaction processing services. This allows the banks to "work" for NOVA and supply them with growing merchant account volume, currently producing 4,000 new accounts per month.
PMT Services, on the other hand, gets its customers through a direct sales force. So, the merger will end up combining these two distribution channels. Those ostensibly concerned with growth are ignoring one of the most important elements of the merger -- the leveraging of PMT's processing volume over NOVA's proprietary network, which will largely eliminate cost number three on the above list for PMT's processing portfolio. These important cost savings will help drive the combined entity's growth going forward as more and more redundant functions are eliminated. This development combined with strong growth prospects for the industry as a whole -- The Nilson Report projects card volume will grow 15% compounded annually to $6.5 trillion by 2005 -- bodes well for NOVA. While NOVA is currently not cheap, it's certainly cheaper than it was yesterday. Interested investors should take a closer look.
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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