DJIA 8790.60 -32.70 (-0.37%) S&P 500 1161.97 -0.86 (-0.07%) Nasdaq 2009.36 -3.24 (-0.16%) Value Line Inx 869.83 +0.86 (+0.10%) 30-Year Bond 103 31/32 +17/32 4.99 Yield
Several online retailers got a boost after CIBC Oppenheimer raised its 12-month price target on Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> to a whopping $400 per share from the previously forecasted $150 per share. That sent Amazon's shares up $46 1/4 to $289. Other Internet retailers rallied on the news, as eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> added $29 1/2 to $223 1/2 and Onsale <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONSL)") else Response.Write("(Nasdaq: ONSL)") end if %> advanced $2 7/8 to $40 3/8. Recent online bookseller addition Books-A-Million <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAMM)") else Response.Write("(Nasdaq: BAMM)") end if %> also gained $8 1/16 to $18 1/8 as it announced the acquisition of privately held NetCentral Inc., which designed the company's website. News from America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> that its AOL Shopping e-commerce channel has so far attracted 3.5 times more shoppers during this year's Christmas season than a year ago also helped the e-tailers and sent AOL's shares up $3 7/16 to $96 3/16.
Several oil and gas services and contract drilling firms gained ground today as oil prices posted their biggest one-day gain since September. Late this afternoon, the U.S. led what a White House spokesperson reportedly termed "a substantial military attack" against Iraq for refusing to grant U.N. weapons inspectors full access to suspected weapons facilities. The attack could disrupt the flow of Iraqi oil, leading oil traders to believe the ongoing global oil glut may ease somewhat. Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> gained $2 13/16 to $46 11/16, Halliburton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> added $2 1/8 to $33 5/8, Baker Hughes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BHI)") else Response.Write("(NYSE: BHI)") end if %> rose $15/16 to $17 5/16, Diamond Offshore <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DO)") else Response.Write("(NYSE: DO)") end if %> tacked on $3 to $26, Global Marine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLM)") else Response.Write("(NYSE: GLM)") end if %> climbed $1 1/2 to $11, R&B Falcon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> advanced $1 9/16 to $9 7/8, Transocean Offshore <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIG)") else Response.Write("(NYSE: RIG)") end if %> moved up $2 7/8 to $28 1/16, and Noble Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NE)") else Response.Write("(NYSE: NE)") end if %> moved up $1 9/16 to $14 5/8.
QUICK TAKES: Entertainment and consumer products retailer K-tel International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTEL)") else Response.Write("(Nasdaq: KTEL)") end if %> rose $1 3/16 to $13 1/2 after announcing financing plans to retain its stock listing on the Nasdaq National Market and raise $15 million to $20 million in equity in order to meet its long-term capital requirements... Internet search and retrieval software company Verity Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTY)") else Response.Write("(Nasdaq: VRTY)") end if %> climbed $3 5/8 to $27 after reporting fiscal Q3 EPS of $0.18, doubling the $0.09 mean estimate of the two analysts surveyed by Zacks... Hotel real estate investment trust Patriot American Hospitality <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAH)") else Response.Write("(NYSE: PAH)") end if %> was lifted $3/4 to $7 15/16 after an investment group including Apollo Management and Thomas H. Lee Co. agreed to provide the company with $1 billion in equity financing, allowing the firm to "reduce leverage, improve liquidity, and... continue to implement its business plan," according to Chairman and CEO Paul Nussbaum.
Oil and natural gas exploration and production company Enron Oil & Gas <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EOG)") else Response.Write("(NYSE: EOG)") end if %> picked up $1 to $16 1/2 after parent Enron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ENE)") else Response.Write("(NYSE: ENE)") end if %> disclosed in a Securities and Exchange Commission filing that it has received an unsolicited offer from an unspecified company for its 53.5% stake in Enron Oil & Gas. Enron Corp. gained $1 11/16 to $55 1/8 as well... Imaging, digital video, and graphics processing integrated circuits firm Genesis Microchip <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNSSF)") else Response.Write("(Nasdaq: GNSSF)") end if %> tacked on $1 3/4 to $23 1/2 after reporting fiscal Q2 EPS of $0.15, up from $0.05 last year and topping the Zacks mean estimate of $0.10... Wireless telecommunications services provider Sprint PCS Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PCS)") else Response.Write("(NYSE: PCS)") end if %> rang up $1 13/16 to $16 7/16 after Morgan Stanley Dean Witter started coverage of the company with a "strong buy" rating and a price target of $25 per share.
Automaker General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> motored ahead $2 13/16 to $70 after Warburg Dillon Read started coverage of the company with a "buy" rating... Steel maker Bethlehem Steel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BS)") else Response.Write("(NYSE: BS)") end if %> forged a $5/16 gain to $7 15/16 after PaineWebber raised its rating to "buy" from "neutral" and set a 12-month price target of $10 per share... Internet-based automated business administrative services provider Concur Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNQR)") else Response.Write("(Nasdaq: CNQR)") end if %> gained $7 to $19 1/2 in its first day of trading after the company sold 3.1 million shares in an initial public offering at a price of $12.50 per share... Online telecommunications services firm Tel-Save.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TALK)") else Response.Write("(Nasdaq: TALK)") end if %> picked up $1 7/8 to $10 7/16 after saying it will report positive earnings in Q4 and positive cash flow of up to $10 million in Q1 of fiscal 1999.
Wire and cable maker Superior TeleCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SUT)") else Response.Write("(NYSE: SUT)") end if %> gained $4 7/16 to $42 15/16 after forecasting earnings growth of "at least 30%" and even higher year-on-year cash flow growth for fiscal 1999... Casual sportswear maker Quiksilver <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZQK)") else Response.Write("(NYSE: ZQK)") end if %> sprinted ahead $5 3/4 to $30 1/2 after reporting fiscal Q4 EPS of $0.43, ahead of the First Call mean estimate of $0.30... Cigar maker Consolidated Cigar Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIG)") else Response.Write("(NYSE: CIG)") end if %> rose $1 1/2 to $17 3/8 after agreeing to be acquired by French tobacco products distributor Seita S.A. in a tender offer for $17.85 per share in cash... Cable TV systems operator Century Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTYA)") else Response.Write("(Nasdaq: CTYA)") end if %> added $3 1/8 to $29 after hiring Donaldson, Lufkin & Jenrette to explore "strategic alternatives"... Internet content aggregator Infospace.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INSP)") else Response.Write("(Nasdaq: INSP)") end if %> tacked on another $6 3/4 to $26 3/4 after gaining 33% yesterday following its $15 per share initial public offering.
Men's apparel maker Nautica <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAUT)") else Response.Write("(Nasdaq: NAUT)") end if %> capsized today, sinking $3 7/16 to $13 5/16 on news that earnings for its next two quarters will fall below expectations. The company said it expects results for the third quarter ended on November 30 to show earnings and revenue increases of 6% to 8%, respectively. Based on last year's EPS of $0.48, that indicates EPS should come in around $0.51, $0.04 off the First Call consensus estimate. Nautica blamed a "very difficult" retail environment, mild weather, and general economic factors for the projected shortfall. The company also said it expects Q4 EPS to fall below Wall Street's $0.39 per share estimate but didn't give specific figures. The Fool closely inspected Nautica's ship in today's Lunchtime News.
While specialty cellulose products maker Buckeye Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKI)") else Response.Write("(NYSE: BKI)") end if %> is reasonably certain it can clear up one of the matters clouding its financial future, the other is entirely out of its hands. The company lost $2 3/8 to $12 1/2 today following last night's announcement that it expects fiscal Q2 EPS to come in 25% below analysts' $0.37 estimate when it reports results in late January. Buckeye attributes some of the projected shortfall to costs involved with manufacturing and packaging improvements at its Foley, Florida plant, costs the company says it's addressing. But lower orders were also a culprit, and "it is not yet possible to estimate the timing of an improvement in its customers' businesses," the company noted in a statement. Buckeye hasn't strayed more than a penny from Street estimates in either direction over the last five quarters. This time around, the company could miss projections by nearly a dime.
QUICK CUTS: Post-It notes and Scotch tape maker 3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> came unstuck today, falling $2 3/8 to $71 3/8 after warning that it expects fourth quarter earnings per share to be about 10% lower than last year's $0.89. That means EPS of roughly $0.80 compared with the First Call consensus prediction of $0.96... Earth movers and heavy construction equipment manufacturer Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> dropped $3 1/16 to $41 3/18 after losing $1 13/16 yesterday on the news that Q4 earnings are seen coming in "moderately less" then the $0.92 per share posted in Q3 and the First Call mean estimate of $1.06 per share.
Jabil Circuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JBL)") else Response.Write("(NYSE: JBL)") end if %>, a contract manufacturer of circuit board assemblies, stumbled today, losing $3 5/16 to $66 3/16, despite reporting fiscal Q1 EPS of $0.50, exceeding analysts' expectations of $0.43 and coming in a penny ahead of last year. CE Unterberg Towbin downgraded the stock to "buy" from "strong buy" today... Irrigation equipment maker Lindsay Manufacturing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LNN)") else Response.Write("(NYSE: LNN)") end if %> dripped $1 13/16 to $13 3/16 after reporting Q1 EPS of $0.10, down from $0.32 last year and $0.03 below Street expectations. The company warned of likely shortfalls in Q1 and Q2 this September... Music and video retailer Trans World Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWMC)") else Response.Write("(Nasdaq: TWMC)") end if %>, spun away $3 to close at $15 1/4 after Everen Securities cut its short- and long-term ratings on the company to "market perform" from "outperform."
Quickie photo maker Polaroid Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRD)") else Response.Write("(NYSE: PRD)") end if %> fell $5/8 to $18 1/4 after it announced that it would take reserves in Q4 of about $90 million to cover costs for additional restructuring and losses from asset sales. The company also said it renegotiated a $350 million credit pact with its 14 bank lenders... Long-distance phone company Qwest Communications International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> slipped $1 7/16 to $42 1/16 after Deutsche Bank initiated coverage of the company with a "hold" rating. The stock gained ground earlier this week after Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> reported a $200 million investment in the company.
Healthcare firm American Home Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> was knocked down $2 5/16 to $50 11/16 after Baxter International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAX)") else Response.Write("(NYSE: BAX)") end if %> sued one of its units for patent infringements... Telephone company Embratel Participacoes' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMT)") else Response.Write("(NYSE: EMT)") end if %> American depositary shares, each representing 1,000 preferred shares, lost $1 to $13 15/16 as 12 spinoffs of Brazilian telecom giant Telebras began trading today... High performance metals company Special Metals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMCX)") else Response.Write("(Nasdaq: SMCX)") end if %> rusted $7/8 to $8 1/4 after it said last night that 840 workers at its Huntington, West Virginia facility are striking, which will have an unknown effect on earnings in Q4 and possible into 1999.
Building, aerospace, and industrial control systems designer Honeywell Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HON)") else Response.Write("(NYSE: HON)") end if %> buzzed down $1 5/8 to $71 1/2 after it said it expects $55 million in pre-tax Q4 charges to fund cost reductions and efficiencies... Pump products and engineered equipment manufacturer IDEX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IEX)") else Response.Write("(NYSE: IEX)") end if %> slid $1 13/16 to $24 5/16 after two brokerages downgraded the stock... Automobile engine remanufacturer and distributor Bonded Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMTR)") else Response.Write("(Nasdaq: BMTR)") end if %> lost $11/16 to $5 1/2 today, continuing a fall that started Monday when it cancelled a planned stock offering and said it will miss Q4 earnings estimates... Transportation logistics management company Ryder System <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: R)") else Response.Write("(NYSE: R)") end if %> trailed off $1 3/16 to $23 7/8 after Stephens Inc. cut its rating on the stock to "neutral" from "market outperform."
FOOL
ON THE HILL
An Investment Opinion
by
Louis Corrigan
Quintiles Seeks Envoy, Dominance
The best companies often have a way of redefining their markets so as to solidify and expand their own competitive advantages. They want to make others play their game or risk becoming increasingly marginalized. Quintiles Transnational <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QTRN)") else Response.Write("(Nasdaq: QTRN)") end if %>, the big daddy among contract research organizations (CROs) that provide outsourcing services to the pharmaceutical industry, appears to have redefined its market. The company announced this morning that it has agreed to acquire Envoy <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENVY)") else Response.Write("(Nasdaq: ENVY)") end if %>, a leading provider of electronic data interchange (EDI) services to the healthcare market.
The market didn't like the news, dropping shares of Quintiles by $10 5/16 to $45 7/8 even as Envoy soared $8 to $50 1/4. The stock swap calls for each of Envoy's 24.4 million shares, plus 3.5 million outstanding options, to be converted into 1.166 shares of Quintiles in a tax-free pooling of interests. The deal has a collar, meaning it could be terminated if Quintiles' price trades outside a range of $40 to $71.50. Based on Quintiles' closing price yesterday of $56, the agreement valued Envoy at $65 a share, or a 55% premium, making it a $1.7 billion deal before today's sell-off.
Despite the market reaction, the merger solidifies Quintiles' dominance as the ultimate one-stop shop CRO even as it positions the company as one of the chief value-added, data-driven marketing partners for drug developers. With analysts projecting Envoy to do $230 million in sales in FY99, the combined companies should break the $2 billion mark next year. "We see great potential for margin and revenue growth from Envoy in the medium and especially the long term," said Quintiles Chair/CEO Dennis Gillings in today's press release. "[W]e remain comfortable that we can meet consensus analysts' estimates for 1999, excluding transaction costs and other expenses." With those estimates at $1.37 per share, the stock now carries a forward P/E of 34, in line with its projected growth rate.
The CRO market has exploded as pharmaceutical companies and biotechs have re-evaluated their core competencies and outsourced an increasing amount of the time-consuming and expensive work of bringing drugs from lab to market. The top CROs, including Covance <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVD)") else Response.Write("(NYSE: CVD)") end if %>, Parexel International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRXL)") else Response.Write("(Nasdaq: PRXL)") end if %>, and Pharmaceutical Product Development <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PPDI)") else Response.Write("(Nasdaq: PPDI)") end if %>, now conduct preclinical research, study design, clinical trial management, data collection, biostatistical analysis, and preparation of regulatory submissions for their clients. They get drugs to market more quickly and at a lower cost. Speed is particularly important since drugmakers want to cash in before patents expire.
Yet the CRO market has evolved, with leading players offering more services, including not just marketing and consulting but sales as well. Indeed, contract research firms have moved even further toward analyzing the effectiveness of drug treatments so that pharmaceutical companies can get more bang from their marketing bucks. Companies are spending more money on post-marketing Phase IV trials to collect long-term safety data that can boost marketing efforts as well as test new uses for the drug or new dosing formulas. The goal is simply to collect the kind of data that can expand a drug's market penetration, thus leveraging the tremendous up-front cost of getting it to market in the first place.
Size and scope appear to be meaningful competitive advantages in this marketplace. The CRO space has been consolidating partly because pharmaceutical companies are really looking for partners. They've handed more of their business to the companies that can do the most for them. Indicative of this trend is the tentative agreement, announced Monday, under which Quintiles will pay $93 million in cash to acquire Hoechst Marion Roussel's Drug Innovation and Approval organization, including its 540 personnel. In return, Hoechst will guarantee Quintiles $436 million in business over five years for ongoing research efforts plus first crack at another $144 million worth of business. Quintiles also gains status as Hoechst's preferred CRO partner for new projects.
Quintiles' size gives it a decided advantage. It's annual sales exceed that of its two top competitors while its base of 14,000 worldwide employees in 30 countries is more than its top three competitors combined. Aside from doing business with basically all the 50 leading international drug companies, it has a diversified revenue base. Last year, 52% of revenue came from the core clinical and data management business, 36% from sales and marketing services, and the rest from disease management, healthcare consulting, strategic marketing and other services.
Quintiles led the CRO industry into contract sales services in late 1996 through its acquisition of Innovex Holding, and it has continued to expand its offerings through acquisitions. The Envoy deal means it's now moving aggressively to get fully wired into the more data-driven component of this end of the business. Just yesterday, Quintiles announced a definitive agreement to acquire Pharmaceutical Marketing Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMRX)") else Response.Write("(Nasdaq: PMRX)") end if %>. Its main Scott-Levin unit, with $20.4 million in sales year-to-date, provides market research audits measuring the effectiveness of pharmaceutical promotion efforts in the U.S. Quintiles aims to develop an electronic information network that links patients, providers, and payers in a way that will allow it to enhance the commercial success of its clients' drugs by providing in-depth and timely market data. Both Envoy and Scott-Levin will continue to be run by their current management teams and will operate as subsidiaries of Quintiles.
Envoy is attractive to Quintiles for a number of reasons. For one thing, it's the leader in EDI commercial claims, with a client base that includes 200,000 physicians, 34,000 pharmacies, 38,000 dentists, 4,400 hospitals and half of all payors, including the top 20. According to a research report issued today by Needham & Co. analyst Bernard Lirola, HMOs currently receive only 18% of their claims electronically while just 38% of physicians' claims are sent electronically. The wired world, though, is catching up to the claims process, with real-time EDI growing at 65% a year. Quintiles says analysts expect the healthcare EDI market to grow from $1 billion a year to $3.1 billion by 2002. Lirola expects Envoy's repeat transaction business will smooth out some of the lumpiness in Quintiles' contract business.
The potential synergies of the deal offer the real kick. As Lirola notes, Envoy will allow Quintiles to create a real-time link between the physician who writes the prescription and the pharmacy that fills it. In theory, that marketing data can be made available in real-time both to Quintiles' contract sales force and to its pharmaceutical clients. That's at least one application that will allow Quintiles to leverage its current relationships with drug makers. Joining medical claims data with clinical trial data in real-time also could speed up the analysis of Phase IV trials and provide highly useful data to healthcare payors.
Lirola thinks this merger pressures IMS Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RX)") else Response.Write("(NYSE: RX)") end if %>, which gained $1 3/16 to $69 15/16 today, while enhancing the value of National Data <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NDC)") else Response.Write("(NYSE: NDC)") end if %>, which has its own real-time healthcare connectivity network and gained $2 3/8 to $38 15/16. Part of the market's poor reaction to the Envoy merger, though, may be that it's slightly dilutive to earnings and that it represents a significant move by Quintiles outside of its core business. Investors are wondering if Quintiles can get around some of the privacy issues involved in the medical records biz to make real use of this data. Some investors may also hear echoes of the other recent merger of clinical and administrative companies in the healthcare field: HBO's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBOC)") else Response.Write("(Nasdaq: HBOC)") end if %> combination with Access Health and pending merger with McKesson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCK)") else Response.Write("(NYSE: MCK)") end if %>. But the economics of the Envoy deal, at least for Quintiles, appear to be quite attractive given that Envoy's rising operating margins should top 25% for the year, well above Quintiles year-to-date 10.4% margins. There's also the promise of more profitable synergies down the road. If that happens, Quintiles will indeed be the envy of the CRO space.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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