DJIA 8943.80 8.22 (+0.09%) S&P 500 1133.20 +3.92 (+0.35%) Nasdaq 1869.53 +6.28 (+0.34%) Value Line ndx 939.88 +2.31 (+0.25%) 30-Year Bond 107 +9/32 5.63% Yield
Personal grooming products and Duracell batteries maker The Gillette Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: G)") else Response.Write("(NYSE: G)") end if %> glided up $1 13/16 to $57 after orchestrating a "charity shave" involving the head of the New York Stock Exchange and, more importantly, after announcing that it has begun to ship its new MACH3 shaving system to stores throughout the U.S. and Canada. Gillette spent more than $750 million to develop the MACH3, which it expects will be covered by more than 35 patents. The company is billing the shaver as "the first and only shaving system with three progressively aligned blades" that supposed to give men a closer shave in fewer strokes and with less irritation. To hype the launch, Gillette convinced NYSE President William Johnston to shave off his beard for the first time in 17 years using the MACH3 before today's opening bell. It was part of a charity shave in which traders made bids for the privilege of taking the first strokes of the razor.
Foamex International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FMXI)") else Response.Write("(Nasdaq: FMXI)") end if %> gained $1 1/2 to $17 3/4 after announcing it has agreed to allow its principal shareholder, Trace International Holdings, to acquire the 54% of the company it doesn't already own for $253 million, or $18.75 a share in cash. This represents a 15% premium to yesterday's closing price and is higher than the original, unsolicited bid of $17 a share Trace made in mid-March. With operations in the U.S., Canada, and Mexico, Foamex is North America's largest manufacturer of flexible polyurethane and advanced polymer products, which are used to make such diverse products as steering wheels, diapers, carpet cushion, and mattresses. Privately held Trace has played an integral role in Foamex from its beginning in 1983, when 21 International Holdings (now Trace) acquired Scott Paper's foam division. Other businesses were added to the mix later, including the foam division of Firestone Tire & Rubber and a number of regional foam producers. The company went public in December 1993. Trace plans to take the company private again after the transaction is completed.
QUICK TAKES: Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> gained $2 7/8 to $104 7/16 as Salomon Smith Barney said that the software giant's new Windows NT server, SQL Server 7.0, is outperforming Oracle's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> 8.0 product. Separately, Microsoft said it sold more than 120,000 copies of its Windows 98 operating system before stores began selling the product yesterday... Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> moved up $2 13/16 to $89 7/8 after Morgan Stanley Dean Witter raised its 12-month price target for the Internet networking company to $105 from $90... Bristol-Meyers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %> added $3 1/2 to $117 1/2 after Prudential Securities raised its 12-month price target on the drug company to $135 from $123 while reiterating its "buy" rating, citing that sales for the company's two cardiovascular drugs are moving steadily higher.
Home furnishing retailer Pier One Imports <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PIR)") else Response.Write("(NYSE: PIR)") end if %> advanced $1 3/16 to $23 1/8 after announcing a 3-for-2 stock split payable July 29 and an increase in its quarterly cash dividend by 12.5% on a post-split basis... Consumer lawn and garden care products supplier The Scotts Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMG)") else Response.Write("(NYSE: SMG)") end if %> surged $3 13/16 to $37 7/16 after announcing that for about $300 million it will acquire Monsanto's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> consumer lawn and garden businesses as well as have exclusive international marketing and agency rights to Monsanto's consumer Roundup herbicide products... Osteotech Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OSTE)") else Response.Write("(Nasdaq: OSTE)") end if %>, which provides human bone and bone connective tissue for transplantation, connected for a $3 1/2 gain to $18 1/2 after announcing it expects to meet earnings expectations for the second quarter and that it will repurchase up to $5 million of the company's shares, which it considers to be "significantly undervalued."
Facilities management industry consolidator Consolidation Capital <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BUYR)") else Response.Write("(Nasdaq: BUYR)") end if %> gained $27/32 to $22 23/32 after announcing plans to acquire seven companies -- four in the electrical and mechanical contracting services industry and three in the janitorial services industry -- which will translate into around $380 million in new annualized revenue... J.B. Hunt Transport Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBHT)") else Response.Write("(Nasdaq: JBHT)") end if %> chugged ahead $2 3/4 to $35 7/16 after Merrill Lynch raised its near-term rating on the truckload carrier to "accumulate" from "neutral" and its long-term rating to "buy" from "accumulate," with an 18-month price target of $42 to $44. J.B. Hunt also was upgraded to "buy" from "market perform" by BT Alex. Brown... Enterprise workflow and electronic forms specialist JetForm Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORMF)") else Response.Write("(Nasdaq: FORMF)") end if %> jetted up $3/4 to $22 after reporting Q4 EPS of $0.28 compared with a loss of $0.07 in the year-ago period.
Internet services provider Verio Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRIO)") else Response.Write("(Nasdaq: VRIO)") end if %>, which went public last month, climbed $2 1/16 to $23 on news that the head of Ameritech Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIT)") else Response.Write("(NYSE: AIT)") end if %> cellular and paging services business, Herbert Hribar, will become its president and chief operating officer effective July 6... Brooke Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGL)") else Response.Write("(NYSE: BGL)") end if %> gained $1 1/2 to $12 1/8 after Birinyi Associates recommended the cigarette maker because of its positive money flows, which indicate that money managers have been accumulating the stock... Stratus Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRA)") else Response.Write("(NYSE: SRA)") end if %> picked up $1 3/16 to $24 5/16 on news that California investor Joseph Harrosh has acquired a 6.6% stake, or roughly 1.6 million shares, in the computer systems and services company at a net average price of $24.5484 a share... Real estate-related financial and information services company First American Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FAF)") else Response.Write("(NYSE: FAF)") end if %> gained $2 3/4 to $91 3/8 after announcing a 3-for-1 stock split and a regular quarterly cash dividend of $0.15 per share on a pre-split basis.
Biotechnology outfit Gilead Sciences <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GILD)") else Response.Write("(Nasdaq: GILD)") end if %> was lifted $7/8 to $34 5/8 after announcing that its genetic-coded research and development agreement with Glaxo Wellcome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %> has ended, allowing Gilead to license its technology to another drug company... Inhale Therapeutic Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INHL)") else Response.Write("(Nasdaq: INHL)") end if %> rose $2 3/8 to $25 1/2 after NationsBanc Montgomery Securities reiterated the medical company as a "buy," adding that the market for short-acting insulin products is robust... Barrett Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRR)") else Response.Write("(NYSE: BRR)") end if %> added $1 13/16 to $38 after Lehman Brothers upgraded the oil and gas exploration company to "buy" from "outperform" with a 12-month price target of $45 citing Barrett's strong multi-year development program.
Copier and office equipment supplier Danka Business Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DANKY)") else Response.Write("(Nasdaq: DANKY)") end if %> dropped $3 13/16 to $13 3/16 after saying its fiscal Q1 and 1999 results will be "adversely impacted" by revenue shortfalls in its Americas operations. Specifically, first quarter revenues are expected to be 10% lower than Street estimates. The First Call mean estimate called for earnings of $0.24 per share for Q1 and $1.36 per share for the fiscal year. The company's shareholders have been down this road before, as Danka warned investors last December that difficulties in integrating its acquisition of Eastman Kodak's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> office imaging unit would drag down its fiscal Q3 results. While it's not clear whether this shortfall has anything to do with the Kodak purchase, it does appear, at least, that it has impeded Danka's earlier strategy of growing its business through acquisitions.
Several oil services and equipment stocks fell today after Jefferies & Co. analyst Roderick McKenzie downgraded 18 companies in the sector, based on the recent volatility of oil prices. Companies operating on land and in shallow-water drilling operations are most at risk, according to McKenzie. With oil futures contracts prices jumping around lately like a cat in a room full of rocking chairs, investors in the industry should get accustomed to the notion that this spillover effect will continue into the foreseeable future. Among those hit today, Atwood Oceanics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATW)") else Response.Write("(NYSE: ATW)") end if %> fell $2 9/16 to $38 5/16, Cliffs Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDG)") else Response.Write("(NYSE: CDG)") end if %> lost $2 1/16 to $32 1/4, Marine Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDCO)") else Response.Write("(Nasdaq: MDCO)") end if %> dropped $13/16 to $15 5/8, Newpark Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NR)") else Response.Write("(NYSE: NR)") end if %> slid $2 9/16 to $9 15/16, Rowan Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDC)") else Response.Write("(NYSE: RDC)") end if %> slipped $1 to $19 7/16, Superior Energy Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SESI)") else Response.Write("(Nasdaq: SESI)") end if %> slumped $11/32 to $5 1/32, and Maverick Tube Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAVK)") else Response.Write("(Nasdaq: MAVK)") end if %> lost $15/16 to $11 9/16.
Gas and liquid storage and treatment systems maker ITEQ Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITEQ)") else Response.Write("(Nasdaq: ITEQ)") end if %> lost $2 3/8 to $7 1/4 after backing out of its previously announced $106.5 million tender offer for Australian construction services firm McConnell Dowell after discovering "significant contingent liabilities" during the due diligence process. Deutsche Bank Securities downgraded ITEQ to "hold" from "buy." In the U.S., companies conduct due diligence before they make an offer on another firm. The process is reversed in Australia, however -- meaning ITEQ wasn't privy to a reported $25 million in outstanding McConnell Dowell letters of credit and bank guarantees until after naming its price. ITEQ's chief financial officer called today's drop in the firm's share price "excessive" and attempted to stem the bleeding by announcing it would repurchase an unspecified number of shares.
QUICK CUTS: Wireless communications products maker Qualcomm <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QCOM)") else Response.Write("(Nasdaq: QCOM)") end if %> dropped $2 1/4 to $54 1/8 after an analyst told Bloomberg News that Sprint's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> wireless unit, which is Qualcomm's largest customer, has stopped selling the firm's "Q" cellular phone due to alleged defects in the phone's construction... Titanium sponge and mill products maker Titanium Metals Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TIMT)") else Response.Write("(Nasdaq: TIMT)") end if %> dropped $1 1/8 to $21 3/8 after saying its fiscal Q2 EPS will be $0.07 to $0.10 below the $0.63 to $0.64 expected by the Street due to lower orders as customers adjust their inventories and production shortfalls at some of its plants... Online bookseller Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> fell $4 13/16 to $94 1/4 after Dain Rauscher Wessels lowered its rating to "neutral" from "buy," citing the stock's valuation level.
Graphics and imaging software developer Adobe Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %> slid $1 15/16 to $42 7/16 after reporting fiscal Q2 EPS of $0.41, beating the Street estimate by a penny but down 32% from the $0.54 earned a year ago... Harrisburg, Pennsylvania-based electrical connectors maker AMP Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMP)") else Response.Write("(NYSE: AMP)") end if %> fell $1/2 to $34 13/16 after saying it would furlough all 22,200 of its U.S. employees for one week this summer and offer early retirement to some due to weak Asian sales and the strong dollar... Mellon Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %> gave back $4 1/4 to $70 5/8 after rising more than 6% yesterday on speculation that Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> will make a bid on the company. Whoops! Today, a Salomon Smith Barney analyst quashed those rumors, calling them "unfounded."
Enhanced directory assistance provider Metro One Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTON)") else Response.Write("(Nasdaq: MTON)") end if %> slipped $1 13/16 to $8 13/16 after saying its contracts with BellSouth's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLS)") else Response.Write("(NYSE: BLS)") end if %> wireless unit and Ameritech's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIT)") else Response.Write("(NYSE: AIT)") end if %> wireless business in Chicago will not be renewed when they run out later this summer. Combined, the contracts represented 13% of fiscal Q1 revenues... Telemarketing outsourcing firm APAC TeleServices <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APAC)") else Response.Write("(Nasdaq: APAC)") end if %> slid $1 13/16 to $5 7/8 after saying a reorganization of its business and current industry conditions will result in fiscal Q2 EPS (before charges) of $0.04 per share, below the $0.11 per share expected by the Street.... Internet services provider MindSpring Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSPG)") else Response.Write("(Nasdaq: MSPG)") end if %> fell $3 1/2 to $91 3/8 after Donaldson, Lufkin & Jenrette lowered its rating to "market perform" from "buy."
Healthcare information products and business management services provider Medaphis Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MEDA)") else Response.Write("(Nasdaq: MEDA)") end if %> sank $11/16 to $6 3/4 after saying its fiscal Q2 earnings will only be "modestly above" the $0.07 per share loss recorded in Q1. The First Call mean estimate called for a loss of $0.02 per share... Medical diagnostic screening tools maker Cholestech Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTEC)") else Response.Write("(Nasdaq: CTEC)") end if %> fell $5 3/8 to $6 3/8 after saying lower-than-expected sales will result in fiscal Q1 EPS (before charges) between $0.02 and $0.04 per share, missing the First Call mean estimate of $0.07 per share... Parametric Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMTC)") else Response.Write("(Nasdaq: PMTC)") end if %> fell $4 11/16 to $29 1/16 after Goldman Sachs cut the product development and design software company's fiscal Q3 revenues estimate to $292 million from $300 million.
Mortgage real estate investment trust (REIT) Capstead Mortgage Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMO)") else Response.Write("(NYSE: CMO)") end if %> tumbled $3 5/8 to $9 5/16 after announcing it will take a $255 million pre-tax loss on the sale of interest-only and mortgage-related securities as part of a "portfolio re-positioning" due to high prepayment rates resulting from falling interest rates... Corporate meetings and businesses services firm Caribiner International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWC)") else Response.Write("(NYSE: CWC)") end if %> dropped $5 7/16 to $17 1/16 after saying it expects fiscal Q3 EPS between $0.25 and $0.28, missing the Street estimate of $0.37 for the quarter... Life insurance holding company Guarantee Life Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GUAR)") else Response.Write("(Nasdaq: GUAR)") end if %> sank $2 1/8 to $21 5/8 after "guaranteeing" it will miss the First Call mean earnings estimate of $0.42 for its fiscal Q2. The company expects EPS ranging from $0.15 to $0.20 in the quarter... Freight truckload carrier Smithway Motor Xpress Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMXC)") else Response.Write("(Nasdaq: SMXC)") end if %> stalled $4 3/4 to $11 after saying revenue shortfalls and higher maintenance expenses will result in fiscal Q2 EPS around $0.20, missing the First Call mean estimate of $0.37.
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
FBR Growing Into Price
Shares of Friedman, Billings, Ramsey Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FBG)") else Response.Write("(NYSE: FBG)") end if %> continue to skirt its 52-week low, but the Washington, D.C.-based securities underwriter, brokerage, and asset manager has outperformed its share price since coming public late last year in an initial public offering of 11 million shares at $20 apiece. The company was viewed as not cheap, to put it delicately, by many an investor. At the time of the IPO, The Wall Street Journal issued a typically fatuous article about the company titled "IPO for IPO Firm May Be a Warning." Unfortunately, almost anywhere you turn, journalists are trying to rationalize any deal as a warning of sky-high valuations and of impending doom. Yes, FBR paid a special distribution to the principals of the firm with the proceeds generated by the offering, but the majority of the IPO proceeds stayed within the firm and are still on the balance sheet as liquid assets, waiting to be plugged into growth plans.
The problem at this time is that FBR can't deploy its capital quickly enough to satisfy some investors. At the moment, the company has net invested capital of $104.2 million but has total financial capital of $325 million. The margin between the two represents presently latent capital that the company plans on investing in the business. Rather than looking at just shareholders' equity, which doesn't tell an investor what the investable capital position (and thus earnings power) of the company is, a better way to look at latent earning power is to look at the company's current price/total financial capital ratio. At 1.77 times financial capital, the company's valuation on a balance sheet basis is not out of hand. Assuming the company's rapid ramp in employment and widening of capabilities leads to a 20% return on financial capital, the company is currently priced at 8.8 times potential earnings over the next twelve months.
There's no doubt that the company's financials are dependent upon its underwriting schedule. However, the company has some well staked-out underwriting, research, and secondary markets capabilities in specific industries such as real estate investment trust, community banks and thrifts, and specialty finance. These are the areas for which the principals of the firm are best known and to which they still occasionally contribute on an operating basis. However, the company is expanding the industries that it covers and the IPOs that it has handled. It handled the IPO of Consolidation Capital Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BUYR)") else Response.Write("(Nasdaq: BUYR)") end if %>, which was one of the largest -- if not the largest -- public offerings of a "blind pool," under which investors turn over capital to a management team for unspecified investments. That's not the sort of thing that you just sell through cold-calling. You need very good institutional sales staff and customer contacts to place such a deal.
Asset management is another area where the company could excel, especially in financial services sector funds, of which they have a couple. The economics of that part of the brokerage/investment banking business can be more attractive than the lumpy economics of the underwriting business, as well. In combination, though, the economics are complementary to each other. Add in asset management for high net worth individuals, pension plan asset management, mergers & acquisitions advisory, and typical capital markets functions like trading, and the company is not that far away from being very well-rounded. A smoother earnings profile will likely win the company more appreciation from investors.
The company will likely keep a bunch of excess capital sitting around to feed into its growing operations and to take large chunks of underwriting business where it wants. When it does broaden its revenue base, it can then leverage itself out a bit more. In the meantime, the company is neither cheap nor really expensive. As a regional brokerage and investment bank, it has a competitive advantage in its home market of Washington/Baltimore. It also has unique sell-side research and underwriting capabilities in banking and thrifts and is growing its national and international brokerage presence. With a motivated and active management team, the company has big plans. Although the shares might not move up appreciably for another one to three quarters because of the company's current valuation and because operating expenses are growing so rapidly, financial services investors should put this one on their watch list.
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
Editing |