DJIA 8001.47 +101.95 (+1.29%) S&P 500 997.71 +13.32 (+1.35%) Nasdaq 1546.08 +53.59 (+3.59%) Value Line ndx 744.41 +13.58 (+1.86%) 30-Year Bond 105 28/32 unch 5.11% Yield
Semiconductor equipment maker Novellus Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NVLS)") else Response.Write("(Nasdaq: NVLS)") end if %> gained $6 1/4 to $29 5/16 after reporting fiscal Q3 EPS of $0.22, less than the $0.57 earned a year ago but higher than the Street's mean estimate of $0.12. Operating expenses declined 18% sequentially thanks to cost cutting at the firm, which has departed with 20% of its workforce since June amid a slowdown in capital equipment spending by semiconductor makers. Helping the results was continued "strong interest" for emerging technologies, such as the company's products for making copper-based chips. The earnings surprise helped spur a rally among other chip equipment makers. Wafer stepper maker ASM Lithography <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> gained $1 1/2 to $15 1/8, Lam Research Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LRCX)") else Response.Write("(Nasdaq: LRCX)") end if %> added $1 31/32 to $11 7/8, KLA-Tencor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> moved up $2 7/16 to $27 7/16, and big daddy Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> advanced $3 3/16 to $26 13/16.
Medtronic Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> beat $6 1/16 higher to $57 after announcing that the FDA has granted pre-market approval for its new Gem DR implanted defibrillator with dual chamber pacing, a feature that had previously only been offered in a defibrillator made by rival Guidant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDT)") else Response.Write("(NYSE: GDT)") end if %>. The approval, which came a few weeks earlier than anticipated, is the big shot analysts had been waiting for Minneapolis-based Medtronic to fire at its Indianapolis-based rival. Most of the future growth in the defibrillator market is expected to come from dual chamber devices, which provide small electrical shocks to the heart if rhythm problems occur in either the lower ventricle area or the upper atrium. Analysts cited by Bloomberg expect the market for the dual chamber devices to grow by 25% to 30% annually, while demand for the older single chamber defibrillators remains essentially flat.
QUICK TAKES: Number-three U.S. automaker Chrysler Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> motored ahead $2 1/2 to $44 1/4 after reporting fiscal Q3 EPS of $1.02 versus $0.65 last year, beating the Street's mean estimate by $0.14... Internet portal company Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> climbed $8 13/16 to $114 7/16 after agreeing to buy privately held online direct marketing firm Yoyodyne Entertainment for 280,664 shares of Yahoo! stock. Other Internet-related companies gained ground today as well. Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> rose $2 to $93 3/16, Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> added $3 1/8 to $34 3/4, and Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> moved up $2 1/8 to $29 1/4... Online media streaming technology company RealNetworks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %> gained $7 7/8 to $34 7/8 after IBM's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> Lotus unit agreed to incorporate the company's RealPlayer G2 and RealEncoder G2 products into Lotus Domino and Notes software.
Swedish telecommunications systems developer LM Ericsson <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> gained $2 5/8 to $19 3/4 after the firm said it is aiming to grow sales at a 20% rate over the coming years, in part by adding new Internet-related features to many of its wireless and fixed-telecommunications product offerings... Electronic design automation products developer Mentor Graphics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MENT)") else Response.Write("(Nasdaq: MENT)") end if %> picked up $1 1/4 to $7 3/4 after the company said strong North American sales and European order volumes will result in fiscal Q3 EPS of $0.12, or 20% above the First Call mean estimate of $0.10... Oilfield services firm Halliburton Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> advanced $1 3/8 to $28 1/2 after Donaldson, Lufkin & Jenrette raised its rating on the company to "top pick" from "buy."
Commercial and consumer lender The CIT Group (NYE: CIT) advanced $1 1/8 to $20 3/8 after The Wall Street Journal's "Heard on the Street" column suggested the firm may get more business in the months ahead if other financing companies start to curtail their lending operations over fears of a coming recession... Funeral home and cemetery operator Service Corp. International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRV)") else Response.Write("(NYSE: SRV)") end if %> was revived by a $2 1/4 gain to $35 3/4 after Credit Suisse First Boston selected the company as its "featured stock of the week"... Secondary mortgage market giant Fannie Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %> gained $2 3/4 to $61 1/4 as CIBC Oppenheimer raised its rating to "strong buy" from "buy."
Snapple beverages maker and Arby's restaurant operator Triarc Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRY)") else Response.Write("(NYSE: TRY)") end if %> moved up $3 to $16 3/16 after the company's CEO and COO offered to buy the company for $18 per share in cash and securities... Outsourced marketing services provider Snyder Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNC)") else Response.Write("(NYSE: SNC)") end if %> added $3 5/8 to $32 3/4 after winning a $6 million pharmaceutical detailing services contract from a unit of drugmaker Zeneca Group PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZEN)") else Response.Write("(NYSE: ZEN)") end if %>... Bank of Tokyo-Mitsubishi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MBK)") else Response.Write("(NYSE: MBK)") end if %> advanced $1 to $9 5/16 after the Japanese government made legislative progress on a proposed plan to deal with the country's failed banks...Pharmacy benefit management firm Express Scripts <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESRX)") else Response.Write("(Nasdaq: ESRX)") end if %> zoomed ahead $3 3/4 to $82 after setting a two-for-one stock split.
Managed healthcare and insurance services outsourcer Concentra Managed Care <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCMC)") else Response.Write("(Nasdaq: CCMC)") end if %> moved up $1 3/4 to $8 1/16 on rumors that the company may be for sale... Postal and business machines maker Pitney Bowes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PBI)") else Response.Write("(NYSE: PBI)") end if %> advanced $2 3/8 to $53 3/8 after agreeing to sell its Colonial Pacific Leasing Corp. financing subsidiary to General Electric's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> GE Capital Corp... Call center and customer service products provider Aspect Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASPT)") else Response.Write("(Nasdaq: ASPT)") end if %> added $1 1/2 to $16 7/8 after Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> licensed the firm's computer-telephony integration system, which will be combined with Oracle's call center and telephony suite... Drug developer Roberts Pharmaceutical Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: RPC)") else Response.Write("(AMEX: RPC)") end if %> rose $1 15/16 to $19 3/4 after saying its fiscal Q3 EPS will "exceed the high end" of the First Call estimate range of $0.10 to $0.13 per share.
Enterprise resource planning software developer Baan Co. NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %> plunged $4 3/8 to $13 1/2 after pre-announcing a third quarter loss of $0.13 to $0.16 a share on revenues of $190 million to $195 million. Analysts had been expecting earnings of $0.15 per share. The company blamed the shortfall on order delays caused by uncertainty in the global economic scene and the reallocation of customers' spending to fix Year 2000 problems. In a conference call with analysts, Baan said about 30 contracts totaling $60 million in value were unexpectedly postponed near the end of September. The company expects these trends to continue until economic conditions improve and companies finish correcting Y2K problems, which isn't likely any time soon. On the bright side of things, Baan today announced a deal with Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> to combine Baan's business software with the Microsoft SQL Server, Microsoft Exchange Server, and Site Server Commerce Edition for the Windows NT platform, a move that is expected to cut ownership costs for customers.
Life sciences company Rhone-Poulenc S.A. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RP)") else Response.Write("(NYSE: RP)") end if %> fell $2 1/8 to $37 13/16 and pharmaceutical and chemical company Hoechst AG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOE)") else Response.Write("(NYSE: HOE)") end if %> lost $1 1/2 to $37 7/8 after announcing that their Centeon joint venture will only restart production at its facility in Kankakee, Illinois, on products deemed "medically necessary" by the Food and Drug Administration. Production had been suspended following a recent FDA inspection. Centeon estimates that the cutback in production could lead to a net loss of $80 million to $150 million, which would be shared equally by the two parent companies. Besides the Centeon joint venture, Rhone-Poulenc said its businesses are "evolving in line with expectations" so far this year, but the company remains "cautious" for the rest of the year because of uncertainty in the global economic climate. Meanwhile, Hoechst warned that it expects a drop in 1998 earnings due to weakness in Asia, Latin America, and Russia.
QUICK CUTS: Wells Fargo & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WFC)") else Response.Write("(NYSE: WFC)") end if %> dropped $16 3/4 to $319 13/16 after a block of 2.5 million shares was sold at $315 a share. Reportedly, the company bought back too many shares and has to reissue about 2.8 million shares before its acquisition with Norwest Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOB)") else Response.Write("(NYSE: NOB)") end if %> can go through as a tax-free pooling of interests merger. Norwest lost $1 5/8 to $32 1/2... Bankers Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> shed $4 5/8 to $54 1/4 after international rating agency Fitch IBCA lowered its long-term rating on the company to 'A' from 'A+,' noting that the bank's returns "have remained below peer norms, and third quarter results will be affected by losses resulting from its Russian and emerging-markets exposure"... San Francisco-based investment bank Hambrecht & Quist Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HQ)") else Response.Write("(NYSE: HQ)") end if %> ended down $1 to $14 7/8 after saying Friday that it expects fiscal 1998 EPS "close" to last year's $1.68, which would fall short of analysts' mean estimate of $1.82 per share.
SBC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %> slipped $2 13/16 to $41 9/16 as Brown Brothers Harriman downgraded its short-term rating on the telecommunications services company to "neutral" from "buy"... Gold mining company Newmont Mining Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEM)") else Response.Write("(NYSE: NEM)") end if %> fell another $1 7/16 to $24 3/16 following CEO Ron Cambre's comments that lower gold prices will take a $25 million bite out of fiscal Q3 revenues. Rival Anglogold Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AU)") else Response.Write("(NYSE: AU)") end if %> American depositary shares slid $2 9/16 to $25 1/2... Upscale home furnishings retailer Restoration Hardware <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RSTO)") else Response.Write("(Nasdaq: RSTO)") end if %> tumbled $2 3/16 to $14 1/16. Bloomberg quoted analyst Shelly Hale of NationsBanc Montgomery Securities as saying that the stock is overvalued compared with its peers.
Sterile medical devices maker Steris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRL)") else Response.Write("(Nasdaq: STRL)") end if %> was pricked for a $3 15/16 loss to $18 1/2 reportedly on concern that it won't meet fiscal Q2 earnings expectations. Today the company announced the cash acquisition of privately held patient handling systems maker Hausted Inc. from Simunico Partners LP... Aftermarket Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATAC)") else Response.Write("(Nasdaq: ATAC)") end if %>, which remanufactures transmissions, torque converters, engines, electronic control modules, instrument display clusters, radios, and parts for repairing automotive drive train assemblies, sank $4 1/16 to $5 9/16 after warning it expects EPS of $0.10 to $0.12 for Q3 and Q4 and full-year EPS of $0.79 to $0.83 (before charges), "significantly below" analysts' consensus estimates of $0.32 for Q3, $0.34 for Q4, and $1.24 for the year.
Copper and plastic fittings manufacturer Mueller Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MLI)") else Response.Write("(NYSE: MLI)") end if %> took a hit of $2 1/8 to $16 5/8 after reporting Q3 EPS of $0.47 a share, which was a penny above last year but $0.03 short of analysts' mean estimate... Real estate investment trust NovaStar Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NFI)") else Response.Write("(NYSE: NFI)") end if %> plummeted $2 3/4, or 37.6%, to $4 9/16 after announcing that in order to increase its liquidity, it is selling mortgage assets and certain whole loans, delaying payment of its Q3 dividend of $0.35 a share until January 15, and cutting general and administrative expenses. The company is expecting "significant fourth quarter losses"... Discovery research organization Tripos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRPS)") else Response.Write("(Nasdaq: TRPS)") end if %> dropped $1 1/4 to $6 after announcing that delays in contract closings and product shipments will result in lower-than-expected Q3 revenues of $5.6 million and EPS of $0.02. That compares with EPS estimates of $0.24 and $0.34 by two analysts, according to IBES.
Discount retailer Consolidated Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNS)") else Response.Write("(Nasdaq: CNS)") end if %> was discounted $1 1/2 to $16 7/16 after Goldman Sachs removed the stock from its "recommended list" and gave the company a "market perform" rating... Plastics and aluminum extrusions manufacturer Tredegar Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TG)") else Response.Write("(NYSE: TG)") end if %> slid $1 1/4 to $19 7/8 despite reporting Q3 EPS of $0.42, excluding unusual items, up from $0.33 last year and topping the one analyst's mean estimate of $0.40, according to IBES.
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
Columbia/HCA: From Critical to Stable?
There were signs of life today at the nation's largest hospital chain as Columbia/HCA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> gained $1 1/8 to $19 1/8 and began to distance itself from its 52-week low of $17. With the federal "raid" on Columbia's El Paso operations now well over a year old, it's interesting to review some thoughts on the matter that were published in this forum a couple months after the Medicare fraud allegations broke. In our Industry Snapshot, Columbia/HCA was featured in the August 22, 1997 "Spotlight" section:
"Does this [scandal] damage the long-term viability of Columbia/HCA? We don't think so. Have the allegations of scandal, and even the payment of fines, hurt the long-term prospects of companies like General Electric, General Dynamics, or Archer Daniels Midland? Nope. Therefore, we're going to look past the current problems of the company and at a credible scenario in which we can see Columbia/HCA growing at an annual rate in the mid-teens over the coming five to ten years. There's more than enough room to consolidate the industry, and that's where we think CEO Dr. Thomas Frist will concentrate."
Although the long-term picture still remains in focus, the exigencies of an industry-wide government probe and a focus on asset sales have both served to diminish the expectation that Columbia/HCA could hop right back on the acquisition trail. In a recent panel discussion on the broader healthcare business, Frist commented on the acquisitions outlook, "This company is still a growth company. We're just going to grow internally, and we're going to continue our stock repurchase program." Since the investigation began, Columbia has sold hospitals, outpatient surgery centers, and chunks of its home healthcare operations in order to become a more "focused" provider.
Cutting down on hospital beds used to make all the difference in the world for the most competitive hospital companies. Not only do depreciation costs per patient decrease, but staff costs per bed go down and financing costs per patient decrease, as do overall fixed costs per bed. It's hard to make an economic return when only 25% of the total capacity of a collection of fixed assets are being used. Even with the asset sales though, Columbia will remain the largest for-profit operator in the country with (currently) 318 general hospitals, 18 psychiatric hospitals, and 145 outpatient centers.
Aside from the peculiar troubles that have become Columbia's lot, the overall hospital business has experienced some sluggishness lately (independently of the downturn). Some key considerations include the nature of Medicare changes that are currently working their way through Congress, admission levels, and the value placed on recent acquisitions. With regard to the last item, in May Columbia announced that it sold 22 hospitals to a consortium of not-for-profit hospitals that were looking to acquire assets that would fill out their markets. Columbia will receive a total of $1.2 billion for the transaction, or roughly 10 times normalized earnings before interest, taxes, depreciation, and amortization (1.5 times revenues) for these 22 hospitals -- which is pretty solid pricing. Of the roughly $2.7 billion that the company has received thus far this year, it is still unclear what percentage of that sum will go toward any fines that it may have to pay to the government.
Working our way backward on the list, unseasonably warmth in the winter months hits all kinds of businesses pretty hard, including clothing retail and energy companies, but hospitals? Yep. As the number of weather-related immune system busting illnesses drop off -- like respiratory failure, flu and pneumonia -- admissions take a similar slide. In addition, stepped-up efforts on the part of managed care payors to reduce costs also have had an affect on inpatient admissions. However, the long-run growth story remains intact.
Finally, Medicare accounts for 35% to 50% of all revenue for the typical hospital. Under the Medicare program, a hospital receives reimbursement under the prospective payment system (PPS). Under the PPS, fixed payment amounts per inpatient discharge are established based on the patient's assigned diagnosis-related group (DRG). DRGs classify treatments for illnesses according to the estimated "intensity" of hospital resources necessary to furnish care for each principal diagnosis. DRG rates have been established for each individual hospital participating in the Medicare program and are based on a statistically normal distribution of severity. Patients falling well outside the normal distribution are allowed additional payments. Under PPS, hospitals may retain payments in excess of costs but must absorb costs in excess of payments, thereby encouraging them to be efficient.
Frist has stated on numerous occasions that he hopes the federal Medicare investigation will be settled in the first quarter of 1999 -- but that closure is ultimately in the hands of the government. Meanwhile, Columbia has not been as concerned about meeting analysts' expectations in the earnings department, but rather doing what it can to maximize its asset mix. The settlement (within the next 12 months) will definitely qualify as a "catalyst" for re-assessing the value of Columbia/HCA's assets. Interested investors would be advised to take a closer look now.
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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