<% ' AvantGo:MarketClose %>DJIA 8706.15 +114.05 (+1.33%) S&P 500 1111.60 +12.93 (+1.18%) Nasdaq 1800.91 +29.53 (+1.67%) Value Line ndx 869.77 +18.53 (+2.18%) 30-Year Bond 104 1/32 -1 5/32 5.23% Yield<% ' AvantGo:End %>
<% ' AvantGo:Heroes %>Spine-related surgical products maker Sofamor Danek Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SDG)") else Response.Write("(NYSE: SDG)") end if %> tacked on $8 1/2 to $110 1/8 after Medtronic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> agreed to acquire the company in an estimated $3.6 billion stock swap. Each Sofamor Danek share will be converted into $115 in Medtronic stock, which was up $1 9/16 to $66 9/16 today. Sofamor Danek's cervical plates and multi-axial screws will be added to Medtronic's neurological unit, which makes implantable neurostimulation products for treating neurodegenerative disorders such as Parkinson's and Alzheimer's disease. Recently, the neuro biz has been taking on an increased importance in Medtronic's overall business, which continues to be geared toward pacemakers and heart valves. According to the firm's latest 10-K, neurological products accounted for 14.8% of Medtronic's net fiscal 1998 sales, up from 12.4% the year before, as the division saw adjusted year-over-year sales growth of 31.4%.
Telecommunications network capacity company Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> picked up $4 5/8 to $21 13/16 on speculation that the firm will soon announce that it has signed a new supply contract with a telecommunications carrier. Rumors have also resurfaced in recent days suggesting the company is a takeover target. The most often mentioned potential suitor is Tellabs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %>, which unsuccessfully tried to acquire Ciena earlier this summer. Tellabs CEO Michael Birck helped rekindle the merger speculation a few weeks back when he told CNBC that Ciena is "seemingly attractive." Now, traders in Ciena's shares appear to be hanging onto that quote for all it's worth, much like the character Linus clings to his security blanket in the comic strip "Peanuts." Further acquisition rumors also swept up the shares of digital subscriber line (DSL) networking systems firm PairGain Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAIR)") else Response.Write("(Nasdaq: PAIR)") end if %>, which ended the day up $5 13/32 at $13 5/8.
QUICK TAKES: Carbonated beverage maker Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> advanced $3 7/16 to $71 after shareholder Warren Buffett told The New York Times that the company will continue to grow despite recent financial turmoil overseas, where Coke derives about 70% of its annual sales... Internet portal firm Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> added $14 19/32 to $145 7/16 after announcing its Yahoo! Employment service, which aggregates more than 360,000 job listings from over 15,000 companies... Online discount broker E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> traded up $1 9/16 to $19 9/16 after signing an agreement with privately held Morningstar Inc., which will provide mutual fund research and performance information to E*Trade's customers.
Business systems management software firm Boole & Babbage <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOOL)") else Response.Write("(Nasdaq: BOOL)") end if %> gained $3 1/2 to $30 1/8 after agreeing to be acquired by enterprise application software developer BMC Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMCS)") else Response.Write("(Nasdaq: BMCS)") end if %> in a stock swap valued at about $900 million. BMC fell $2 to $46 1/16 on the news... Dutch consumer electronics manufacturing giant Philips Electronics NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %> added $4 9/16 to $59 13/16 after the company said it will close 36 to 46 manufacturing plants worldwide over the next four years in an effort to cut costs... Oil and gas drilling products and services firm Smith International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SII)") else Response.Write("(NYSE: SII)") end if %> spouted up $1 1/16 to $37 after an article in Barron's suggested the company may be a takeover target. Rival Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %>, which was singled out as a possible buyer, rose $2 3/4 to $55 1/4.
Help desk software maker Remedy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMDY)") else Response.Write("(Nasdaq: RMDY)") end if %> moved up $3 to $11 3/4 after winning a contract from telecommunications equipment maker Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> to design a worldwide customer support system for Lucent's network products... Macromedia <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MACR)") else Response.Write("(Nasdaq: MACR)") end if %> advanced $2 15/16 to $22 15/16 after Adams, Harkness & Hill started coverage of the Web publishing and design tools company with an "attractive" rating... International Manufacturing Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMSX)") else Response.Write("(Nasdaq: IMSX)") end if %>, which provides circuit board backplane and box-build assembly services, rose $1 5/8 to $6 3/4 after agreeing to be acquired by computer and communications design and manufacturing services firm Celestica Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLS)") else Response.Write("(NYSE: CLS)") end if %> in a deal valued at $160 million.
Orbotech Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORBKF)") else Response.Write("(Nasdaq: ORBKF)") end if %>, which designs printed circuit board automated optical inspection and computer-aided manufacturing equipment, spun ahead $2 to $37 after reporting Q3 EPS of $0.75, beating the Street's mean estimate of $0.71... Magnetic resonance imaging (MRI) products maker Advanced Magnetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AVM)") else Response.Write("(AMEX: AVM)") end if %> jumped $3 5/8 to $10 1/8 after an analyst told Barron's the company's stock may be undervalued... Commercial landscape and tree services firm LandCare USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRW)") else Response.Write("(NYSE: GRW)") end if %> grew $1 11/16 to $9 11/16 after lawn care, pest control, and facilities management company ServiceMaster <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SVM)") else Response.Write("(NYSE: SVM)") end if %> agreed to acquire the company for $250 million, or $11 per share in stock... Atlanta-based home builder Beazer Homes USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BZH)") else Response.Write("(NYSE: BZH)") end if %> gained $1 5/16 to $19 after agreeing to acquire Trafalgar House Property from Britain's Kvaerner PLC for about $100 million, expanding its home-building reach into the Washington, D.C., market.
Bottled water supplier AquaPenn Spring Water Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APN)") else Response.Write("(NYSE: APN)") end if %> gurgled $2 15/16 higher to $12 5/8 after agreeing to be acquired by packaged foods giant Groupe Danone <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DA)") else Response.Write("(NYSE: DA)") end if %> for $112 million, or $13 per share in cash... Diversified energy company CMS Energy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMS)") else Response.Write("(NYSE: CMS)") end if %> charged ahead $2 1/8 to $46 3/16 after agreeing to buy Panhandle Eastern Pipe Line Co. and other assets from power producer Duke Energy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DUK)") else Response.Write("(NYSE: DUK)") end if %> for $1.9 billion in cash and $300 million in assumed debt... ResMed Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RESM)") else Response.Write("(Nasdaq: RESM)") end if %>, which makes medical devices for patients with sleep disorders, moved up $5 to $56 after reporting fiscal Q1 EPS of $0.42, beating the Street's mean estimate of $0.37... CalEnergy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CE)") else Response.Write("(NYSE: CE)") end if %> tacked on $1 3/8 to $28 3/4 after Credit Suisse First Boston resumed coverage of the electric power producer with a "strong buy" rating and a price target of $40 per share.<% ' AvantGo:End %>
<% ' AvantGo:Goats %>Sometimes when a member of a company's top brass leaves the fold there's little reason for investors to worry: After all, people retire or seek out new challenges and opportunities. Sometimes, however, a key executive's departure provides an insight into the status of a company's operations. Today, investors were surprised and perhaps somewhat concerned to hear about the resignation of Jamie Dimon, Citigroup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> president and heir apparent to co-chairmen and co-CEOs Sandy Weill and John Reed. Citigroup fell $7/8 to $46 1/8 today, as some interpreted the news of Dimon's departure as an indication that the integration of Citibank and Travelers Group isn't going as smoothly as the company had hoped. What's more, the company didn't name a replacement for the well-regarded Dimon, which raises questions regarding just who will oversee Citigroup's day-to-day operations and execute corporate strategy.
Ever get one of those letters from your financial institution saying, "The bank has made an error in your favor," with a check for a couple of bucks attached to it? (OK, we haven't either, but one can still hope.) Stockholders of call center software developer Information Management Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMAA)") else Response.Write("(Nasdaq: IMAA)") end if %> weren't so lucky today, as their company's stock lost $5/16 to $5 1/4 after the company announced late Friday that it has restated Q2 EPS to better meet SEC guidelines. The new figure, $0.06 per share, was half of the number reported originally. The company also turned in Q3 EPS of $0.13 (excluding unusual charges) late Friday, short of analysts' $0.16 mean estimate. Sales and marketing expenses were higher than expected -- and 83% higher than in Q3 1997 -- because of rising license revenues, the hiring of new sales and marketing staff, and higher cost of services.
Tseng Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSNG)") else Response.Write("(Nasdaq: TSNG)") end if %> sold off its graphic design assets in late 1997 with the intention of freeing up capital to "acquire growth companies in diverse industries." It now appears, however, that Tseng is one step closer to being acquired itself by privately held cancer drug developer Cell Pathways. Today, Tseng dropped $1 5/16 to $5 9/16 on news that Cell Pathways shareholders approved the previously announced merger, in which Tseng shareholders will exchange each of their shares for about 0.36 of a Cell Pathways share. If Tseng shareholders also okay the deal when they vote tomorrow, the new combined company will trade on the Nasdaq under the ticker "CLPA." Tseng shareholders would end up owning 23% of the new company.
QUICK CUTS: Semiconductor testing and inspection equipment company KLA-Tencor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> was downgraded to "neutral" from "outperform" this morning by Morgan Stanley Dean Witter, easing the stock down $2 5/16 to $34 9/16. A number of other firms in the semiconductor capital equipment industry received the same treatment from the brokerage firm: Silicon Valley Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SVGI)") else Response.Write("(Nasdaq: SVGI)") end if %> dropped $1 3/16 to $11 5/8, ASM Lithography <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASMLF)") else Response.Write("(NYSE: ASMLF)") end if %> lost $1 3/16 to $24 5/16, and DuPont Photomasks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DPMI)") else Response.Write("(Nasdaq: DPMI)") end if %> shed $2 1/4 to $34... Semiconductor manufacturer Integrated Device Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDTI)") else Response.Write("(Nasdaq: IDTI)") end if %> gave back $3/4 to $6 3/16 after it announced plans to acquire logic and networking semiconductor products maker Quality Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QUAL)") else Response.Write("(Nasdaq: QUAL)") end if %> in a stock swap that will award Quality stockholders 0.6875 of an Integrated share for each of their own company's common shares.
ABR Information Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABRX)") else Response.Write("(Nasdaq: ABRX)") end if %>, which provides benefits administration, payroll, and human resource outsourcing services to employers, retreated $9/16 to $18 5/16 after saying late Friday it will put off filing its 10-K as it continues talks with the SEC on how to account for its acquisition of Business Computer Services Inc... Plumbing, electrical, and hardware products distributor Barnett Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BNTT)") else Response.Write("(Nasdaq: BNTT)") end if %> dripped down $1 13/16 to $12 3/16 after it said fiscal Q1 EPS was $0.21, just ahead of last year's $0.20 figure but a penny off analysts' projections. CEO William Pray reported "slower than anticipated" growth in the company's core business during Q1... Real Estate Investment Trust (REIT) Bedford Property Investors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BED)") else Response.Write("(NYSE: BED)") end if %> dropped $1 7/16 to $16 7/16 after saying it has ended previously announced talks to sell nearly all of the company's portfolio of suburban office buildings and industrial properties to a third party.
Railroad signal and control products manufacturer Harmon Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRMN)") else Response.Write("(Nasdaq: HRMN)") end if %> rattled down $3/8 to $25 after late Friday's announcement that Q3 EPS will fall below Wall Street's $0.30 estimate when the company reports earnings tomorrow evening. Harmon still anticipates it will meet expectations for the year... Oil and gas services company Willbros Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WG)") else Response.Write("(NYSE: WG)") end if %> leaked $5/8 to $6 after it reported a Q3 loss of $0.78 per share late Friday, underperforming last year's $0.27 EPS and analysts' expectations of a loss of $0.20... Reinsurer Capital Re <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KRE)") else Response.Write("(NYSE: KRE)") end if %> fell $1 13/16 to close at $16 1/2 after it reported Q3 EPS from continuing operations of $0.40, $0.11 below the year-ago figure but a penny above market projections. Capital Re also said it has learned of "irregularities" related to $155.8 million in asset-backed securities it reinsured.
J & J Snack Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JJSF)") else Response.Write("(Nasdaq: JJSF)") end if %> crinkled for a $2 1/16 loss to $20 7/16 after Josephthal & Co. downgraded the company to "hold" from "buy"... Low-temperature industrial process equipment maker Chart Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTI)") else Response.Write("(NYSE: CTI)") end if %>, subject of a recent Daily Trouble, sank $9/16 to $8 5/8 after it handed in Q3 EPS of $0.28, $0.02 above analysts' mean estimate as well as the year-ago mark... Fuel additives and chemicals company Octel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OTL)") else Response.Write("(NYSE: OTL)") end if %> drained off $11/16 to end at $13 3/4 after reporting Q3 EPS of $0.73, missing the Street estimate of $0.92. Still, the company expects to meet earnings objectives in 1998 and 1999, according to CEO Dennis Kerrison.
Two major metal producers retreated today after Oppenheimer & Co. downgraded them to "hold" from "strong buy." Aluminum Co. of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AA)") else Response.Write("(NYSE: AA)") end if %> was cut $2 1/16 to $77 3/16, while Reynolds Metals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RLM)") else Response.Write("(NYSE: RLM)") end if %> lost $3 to close at $57 1/4... Managed care provider Trigon Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TGH)") else Response.Write("(NYSE: TGH)") end if %> wilted $3/4 to $36 3/4 after Scott & Stringfellow downgraded the company to long-term "buy" from "strong buy" for "price reasons only"... REIT Tower Realty Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOW)") else Response.Write("(NYSE: TOW)") end if %> toppled $2 5/16 to $17 15/16 after it said Crescent Real Estate Equities Co. and Reckson Associates Realty Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RA)") else Response.Write("(NYSE: RA)") end if %> have backed out of their planned $24 per share cash purchase of Tower Realty. Tower says it's suing the companies for damages of at least $75 million.<% ' AvantGo:End %>
FOOL
ON THE HILL
An Investment Opinion
by
Warren Gump
Another Way to Play Coca-Cola?
<% ' AvantGo:FOTH %>For a number of years, I have looked at returns obtained by the shareholders of Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> with envy. So far this decade (through the end of September), Coca-Cola investors who have reinvested their dividends have enjoyed annualized returns of over 24%, compared with about 16% for the S&P 500 index. While an 8 percentage point difference is big in absolute terms, it is even more profound when the power of compounding is considered. To put the difference in dollar terms, $1000 invested in the S&P on December 29, 1989 would have turned into $3,664, while the same amount in Coke would be worth $6,568. Total difference: $2,904. In other words, the S&P investor made a more-than-respectable $2,664, but the Coke investor made over twice as much.
Unfortunately, with a value bent, I've personally never been able to pull the buy trigger on Coke stock, which, of course, has been my loss and other investors' gain. I agree that with a 20 or 30-year time horizon, an investor in Coke will make a lot of money. In the meantime, however, I am not comfortable paying 44x trailing earnings for a company with estimated future growth of 14%-18% per year (according to analyst estimates). I would prefer investing in companies with lower valuations and higher growth (which usually is accompanied by a higher-than-Coke risk that long-term growth will not be achieved).
While stock in Coke is not an appealing investment for me, there is obviously an enormous amount of money made by the company, its suppliers, and its customers. For example, fountain beverages are one of the more profitable items for restaurants. At the same time, most people believe Coke's continued success will be driven by expanding into new regions. Combining those two ideas leads one to what might be an interesting investment for Fools. Lancer Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: LAN)") else Response.Write("(AMEX: LAN)") end if %>, based in San Antonio, is one of Coke's prime worldwide suppliers of soda and juice fountain machines.
As stated in the company's 10-K, "substantially all of the Company's sales are derived from, or influenced by, The Coca-Cola Company." In fact, direct sales to Coke accounted for 24% of 1997 sales. A heavy concentration of sales like this can be a double-edge sword. When the going is good, investors receive terrific returns. If something happens to the relationship between supplier and customer, however, there can be a wipeout for the supplier's shareholders. The loss of Coke would, without a doubt, be devastating to Lancer.
In fact, due to the company's dependence on Coca-Cola, just a rumor of a rift between the companies would likely cause a major spill in Lancer's stock price. Nonetheless, investors can probably take comfort in the fact that the companies have a long, close relationship. In addition, while Coca-Cola could certainly do the manufacturing of dispensing equipment itself, it has demonstrated over the years that it prefers to stay out of this area. In many ways, Coke's partnership with Lancer mirrors the one it has with its bottlers: it is a partnership that advances Coke's objectives while minimizing the outlay of Coca-Cola capital.
Sales between 1995 and 1997 at Lancer grew at a compound annual 25% rate, reaching $119 million last year (of which 48% were international). Sales are up another 19% through the end of September. Gross margin has increased from 21.5% in 1995 to 25.9% in the first nine months of 1998. Net earnings increased at a compound 22% between 1995 and 1997, with a significant portion of that growth occurring in 1996. Net earnings for the first nine months of 1998 have grown impressively, rising 32% over the prior year (EPS is up 35%). Earnings in 1997 were hampered by the strategic purchase of operations in Brazil and New Zealand to broaden its international efforts and significantly increased research and development investment. While "international" is not regarded highly in the current market environment, sentiment will likely change in the future (wait a minute, has it already?).
The cash flow statement is not quite as rosy as the income statement, given that the company has been reinvesting into its business. Operating cash flow for the first six months of this year was a negative $1.7 million, thanks to increased accounts receivables and inventory. Receivables have been growing slightly faster than sales (something to watch), while inventory was up a little less than sales (a positive sign).
The balance sheet in the company's recently announced third quarter earnings release was more positive, showing a decrease in receivables and virtually flat inventory from Q2 (a Q3 cash flow statement has not yet been released). To fund increasing working capital and capital expenditures over the past couple of years, Lancer has been increasing debt, which as of Sept. 30, 1998, stands at $46.5 million, or 49% of capitalization. While this level of debt is manageable, investors should closely monitor trends in inventory, accounts receivable, and cash flow in future quarters.
Whither to from here? Zacks consensus estimates for 1998 call for earnings of $0.81 in 1999, increasing to $0.92 in 1999. That means at the current price around $12 investors are paying 14.8x this year's estimates and 13.0x next year's. The long-term estimated growth rate for the company is 15%.
I am much more comfortable paying 15x earnings for Lancer, growing at 15% a year, than 44x earnings for Coke, which is estimated to have up to 18% annual growth. (I'll be, ahem, "courteous" to Coke and assume it will rebound dramatically from this year's earnings decline and the estimated 9% growth for 1999). Now, don't get me wrong, these stocks are not interchangable. Lancer is not another Coca-Cola and will never achieve the high valuations given to dominant worldwide consumer brands. Lancer is in the moderate margin equipment manufacturing business, not the high margin, recurrent soda biz. Quarterly results at Lancer have been (and will be) much more erratic than at the Atlanta giant, although the historical long-term trend looks pretty good at both. As Coke grows, so should Lancer. Call it a value investor's play on Coca-Cola.<% ' AvantGo:End %>
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