DJIA 9044.46 +55.61 (+0.62%) S&P 500 1203.57 +0.73 (+0.06%) Nasdaq 2120.98 -17.05 (-0.80%) Value Line ndx 884.17 -3.93 (-0.44%) 30-Year Bond 101 22/32 -1 6/32 5.14% Yield
Online discount broker Ameritrade Holding Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMTD)") else Response.Write("(Nasdaq: AMTD)") end if %> traded up $13 1/8 to $34 1/8 after pre-announcing fiscal Q1 EPS between $0.09 and $0.11, which is above the company's previous guidance of EPS of $0.06 or $0.07 for the quarter. The company expects to post more than 32,000 trades per day and net revenues greater than $50 million for the quarter, or three times the trades and twice the revenues of a year ago. Chairman and CEO Joe Ricketts added that the company is "off to a great start" in fiscal 1999 after a "wonderful" 1998. Fellow online broker E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> picked up $6 5/16 to $38 7/16 as well, following an upgrade to "strong buy" from "buy" by Piper Jaffray, and discount granddaddy Charles Schwab Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCH)") else Response.Write("(NYSE: SCH)") end if %> added $3 3/4 to $55 7/16.
BA Merchant Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BPI)") else Response.Write("(NYSE: BPI)") end if %> added $2 1/4 to $19 13/16 after BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> agreed to buy the remaining 33.4% economic stake in the payment processing firm it does not already own for $20.50 per share in cash, or about $333 million. BankAmerica expects the deal will close by the end of the first quarter of fiscal 1999. The purchase price is 32% higher than the $15.50 per share BankAmerica had originally bid for the company back in October. That offer prompted BA Merchant Services to cry "inadequate" and sue BankAmerica in an effort to get a higher bid. BA Merchant Services is the fifth man on the $265 billion payment processing all-star team, where the top five companies control three-quarters of the market.
QUICK TAKES: Online services conglomerate America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> picked up $21 to $138 in after-hours trading. After the bell, Standard & Poor's said it will add the company to the vaunted S&P 500 Index, replacing Venator Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %>... Canadian enterprise software developer Cognos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %> gained $4 1/4 to $21 7/8 after reporting fiscal Q3 EPS of $0.36, beating the Zacks mean estimate by a penny. Merrill Lynch and BT Alex. Brown both raised their ratings on the company... E-commerce business services firm iMALL Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMAL)") else Response.Write("(Nasdaq: IMAL)") end if %> jumped $16 3/8 to $28 1/2 after announcing an agreement with telecommunications giant AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> allowing users of AT&T's WorldNet service to receive up to $20 in annual discounts from iMALL's new shopping portal site, Stuff.com.
Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> rose $2 15/16 to $38 after PC Data said Apple's iMac was the top-selling personal computer in stores and through mail-order catalogs last month and for the 3 1/2 months since its product launch in August. For more details, see this morning's Breakfast With the Fool... Wireless personal communications services (PCS) firm Omnipoint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMPT)") else Response.Write("(Nasdaq: OMPT)") end if %> gained $1 1/16 to $8 5/8 after obtaining $375 million in financing for the next 12 months in the form of an unsecured loan and additional financing arrangements with a unit of Siemens and Nortel Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %>... Website co-location and connectivity services firm AboveNet Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABOV)") else Response.Write("(Nasdaq: ABOV)") end if %> rose $1 15/16 to $16 7/8 after saying eight Asian-Pacific Internet services provider have selected the company as their "managed connectivity provider."
Microelectronics capital equipment maker FSI International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FSII)") else Response.Write("(Nasdaq: FSII)") end if %> moved up $2 1/8 to $9 despite reporting a fiscal Q1 loss of $0.31 per share, which was worse than the Zacks mean estimate of a loss of $0.20 per share. However, the company said bookings were up sequentially in the quarter, producing a book-to-bill ratio "considerably above" 1.0. Both NationsBanc Montgomery Securities and Needham & Co. raised their ratings... Coronary stent maker Boston Scientific Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> tacked on $2 1/4 to $25 1/8 after reportedly telling analysts that it is comfortable with the current First Call mean earnings estimate for 1999 of $1.05 per share. The company also believes an improved version of its troubled NIR ON Ranger with SOX stent, which was recalled in October, will be approved by the FDA early next year and reintroduced around midyear.
Contract electronics manufacturer Solectron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> climbed $1 3/4 to $78 3/4 on news it will be added to the Standard & Poor's 500 Index to replace oil lubricants marketer Pennzoil <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PZL)") else Response.Write("(NYSE: PZL)") end if %>, which is spinning off and then merging its Pennzoil Products unit with Quaker State Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KSF)") else Response.Write("(NYSE: KSF)") end if %>... Online software delivery technologies company Digital River <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRIV)") else Response.Write("(Nasdaq: DRIV)") end if %> streamed $4 7/8 higher to $38 7/8 after announcing it will be the exclusive provider of downloadable software products for retailer Kmart's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> website. Kmart's online store plans to offer all of Digital River's more than 131,000 software titles, some of which will be sold using special discounts... International insurer and reinsurer ACE Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ACL)") else Response.Write("(NYSE: ACL)") end if %> gained $1 3/8 to $28 15/16 after saying it is discussing the possible acquisition of Cigna's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CI)") else Response.Write("(NYSE: CI)") end if %> property and casualty business. Cigna rose $1 13/16 to $79 1/8.
Higher education services provider Sylvan Learning Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLVN)") else Response.Write("(Nasdaq: SLVN)") end if %> advanced $3 7/8 to $29 5/16 after The Wall Street Journal's "Heard on the Street" column reported on the recent hubbub about Sylvan's supposed "aggressive accounting" practices, citing one analyst who believes the accounting methods used by the firm do not change the "character of the company's earnings"... Auction house Sotheby's Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BID)") else Response.Write("(NYSE: BID)") end if %> was bid $1 3/4 higher to $29 3/4 after Merrill Lynch raised its intermediate-term rating to "accumulate" from "neutral," commenting that the company may be revalued by the market once it announces its online auction strategy, which Merrill expects "in coming months"... Radio and TV station operator Clear Channel Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCU)") else Response.Write("(NYSE: CCU)") end if %> added $2 3/4 to $52 1/4 after PaineWebber started coverage of the company with an "attractive" rating.
Printed circuit board fabrication materials producer Park Electrochemical Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKE)") else Response.Write("(NYSE: PKE)") end if %> rose $4 11/16 to $24 3/8 after reporting fiscal Q3 EPS of $0.40, down from last year's $0.56 but well ahead of the First Call mean estimate of $0.14... Canadian carbon and stainless steel products processor and distributor Novamerican Steel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TONSF)") else Response.Write("(Nasdaq: TONSF)") end if %> rolled $3 1/2 higher to $8 after reporting fiscal Q4 EPS of $0.29, a nickel better than a year ago and $0.07 ahead of the Zacks mean estimate... Digital and analog oscilloscopes manufacturer LeCroy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCRY)") else Response.Write("(Nasdaq: LCRY)") end if %> spun $2 5/8 higher to $18 following a Salomon Smith Barney upgrade to "buy" from "outperform."
What was it momma used to say about eggs and baskets? There was yolk all over Atlantic Data Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADSC)") else Response.Write("(Nasdaq: ADSC)") end if %> today as the information technology consulting firm lost $5 1/2 to $7 1/2 on the news that a key customer -- which accounted for more than a fifth of its revenues for the six months ended Sept. 30 -- will cancel its contract with Atlantic at year's end. The impact won't be felt immediately, as Atlantic is "very comfortable" with Wall Street's $0.17 EPS estimate for fiscal Q3. The outlook isn't so clear for Q4 and beyond, however. Atlantic, at least outwardly, says its fundamentals "remain strong" and is interpreting the customer's decision as a cost-cutting move rather than a vote of no confidence. Many investors didn't stick around to find out, as trading volume was more than 20 times recent levels, and at least four brokerages downgraded the stock today.
Investors ran from shares of dental practice management company Monarch Dental Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDDS)") else Response.Write("(Nasdaq: MDDS)") end if %> like plaque from mouthwash today after the company warned yesterday of fourth-quarter earnings that could come in as much 66% below analysts' mean estimates. The company rotted $4 7/32, or 48.9%, to $4 13/32 after it forecasted Q4 EPS of $0.06 to $0.12 (before charges), below the analysts' mean estimate of $0.18 despite revenues seen in-line with expectations. Among the problems: a slowdown in its Houston and Arkansas markets; weaker-than-expected results in new markets Austin, Texas; Dayton, Ohio; and New Mexico; and increased expenses in connection with the integration of two acquisitions. There are also some changes at the top for Monarch, as founder Warren Melamed will become Chairman. CEO Gary Cage will take over Melamed's presidential duties while Allan Dworkin, former chairman of Clinical Advisory Board of Valley Forge, will become CDO (that's chief dental officer, folks).
QUICK CUTS: PC direct marketer Micron Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> lost $3 5/16 to $18 1/16 after it said fiscal Q1 EPS was $0.12, a penny above Street estimates and also well ahead of last year's $0.01 profit mark. The company expects a $3.2 million one-time charge stemming from the consolidation of its Japan operations. Concerns over slowed sequential gross margins also may have hurt the stock... Circuit maker Cypress Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CY)") else Response.Write("(NYSE: CY)") end if %> wilted $1 1/8 to $8 11/16 as the company is forecasting a Q4 loss of around $0.04 a share, compared with analysts' mean estimate of earnings of $0.04 a share. The company blamed a manufacturing problem at its Philippines assembly and test plant that has since been corrected.
Leading U.S. motor oil maker Pennzoil Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PZL)") else Response.Write("(NYSE: PZL)") end if %> leaked $1 3/4 to $31 3/4 on news that the company will leave the S&P 500 after the close on December 30th, to be replaced by contract electronics manufacturer Solectron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %>. For a closer look at Pennzoil, grab some leftover Lunchtime News... Juice maker Northland Cranberries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBRYA)") else Response.Write("(Nasdaq: CBRYA)") end if %> fell $3 1/32 to $8 3/32 after it said it expects lower-than-expected revenue and earnings for its fiscal Q1 (ended Nov. 30) and full-year fiscal 1999 (ending Aug. 31). The company expects Q1 EPS to be flat with last year's $0.01, compared with analysts' projections of $0.06... Calendar and organizer company Day Runner Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DAYR)") else Response.Write("(Nasdaq: DAYR)") end if %> slowed $4 1/4 to $13 3/4 following its announcement of expected fiscal Q2 EPS of $0.30 to $0.35, short of analysts' mean estimate of $0.55.
Case Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSE)") else Response.Write("(NYSE: CSE)") end if %> lost $5/8 to $19 13/16 on news that the company expects a nearly 60% drop in 1998 earnings per share, before charges, and even lower numbers for 1999... Semiconductor equipment maker Align-Rite International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MASK)") else Response.Write("(Nasdaq: MASK)") end if %> lost $1 3/8 to $11 1/2 after saying it anticipates fiscal Q3 EPS of $0.15 to $0.18, roughly half of analysts' expectations of $0.32... Specialty chemicals maker Hercules Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HPC)") else Response.Write("(NYSE: HPC)") end if %> weakened $2 7/16 to $26 3/16 following reports that it expects Q4 EPS of $0.28 to $0.33 (excluding charges) compared with analysts' forecasts of $0.47. Longer-than-expected customer shutdowns and construction slowdowns in Europe were among the culprits for the earnings trouble.
Silicon Valley Bancshares <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SIVB)") else Response.Write("(Nasdaq: SIVB)") end if %>, which makes loans to tech firms and life-sciences companies, lost $6 3/4 to $17 3/4 after it said it anticipates Q4 EPS of $0.20 to $0.25, below analysts' expectations of $0.42... Auto repair chain Monro Muffler Brake <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MNRO)") else Response.Write("(Nasdaq: MNRO)") end if %> stalled for a loss of $1 1/2 to $6 1/4 after it said slow progress in improving same-store sales at its recently acquired Speedy U.S.A. locations is expected to cause Q3 net losses of between $0.10 and $0.11 per share. Two analysts polled by First Call currently expect a profit of a dime a share... Networking products maker Cabletron Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> dropped $3/4 to $8 3/16 following its announcement of fiscal Q3 net losses of $0.12 per share, about $0.02 below the company's pre-announced forecast from earlier this month.
Grocery warehouse retailer Smart & Final <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMF)") else Response.Write("(NYSE: SMF)") end if %> fell $1 5/16 to $8 5/16 as lagging operating results from its foodservice distribution units and the impact of interest expense and other costs from its recent restructuring of debt facilities are expected to pull Q4 earnings "significantly" below analysts' expectations of $0.17 a share... Dairy products processor and distributor Dean Foods Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DF)") else Response.Write("(NYSE: DF)") end if %> was milked for $2 1/4 to $40 3/16 after the company reported fiscal Q2 earnings from continuing operations of $0.58, better than last year's $0.50 figure but $0.02 short of market projections... Internet venture capitalist CMG Information Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %>, which today completed the private placement of $50 million in convertible preferred stock, lost $4 7/8 to $119 7/8.
Telecommunications services company Intermedia Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICIX)") else Response.Write("(Nasdaq: ICIX)") end if %> dropped $13/16 to $14 3/16 after it reportedly told analysts that Q4 expenses will be higher than expected, hurting earnings... Generic drugmaker Mylan Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MYL)") else Response.Write("(NYSE: MYL)") end if %> lost $2 1/2 to $24 1/4 after dropping $3 5/16 yesterday, when the Federal Trade Commission formally sued the company on antitrust grounds alleging "restraint of trade"... Cambrex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBM)") else Response.Write("(NYSE: CBM)") end if %>, which provides services to the pharmaceuticals industry and was named as an accomplice in FTC's action against Mylan, fell $3 1/16 to $24 13/16 despite defending its arrangements with Mylan in a statement... Industrial chemicals and sealants maker W.R. Grace <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRA)") else Response.Write("(NYSE: GRA)") end if %> steamed off $1 9/16 to $14 5/8 following reports that the SEC sued the company for alleged manipulation of earnings reports between fiscal years 1991 and 1995.
Casual apparel retailer Paul Harris Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAUH)") else Response.Write("(Nasdaq: PAUH)") end if %> dropped $1 5/16 to $7 5/16 after Hambrecht & Quist cut its rating on the company to "buy" from "strong buy"... International PC and computing products distributor Ingram Micro <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IM)") else Response.Write("(NYSE: IM)") end if %> fell $9 1/4 to $37 today, pre-announcing Q4 of EPS of between $0.48 and $0.50 just after the bell, which was short of analysts' $0.56 consensus estimate ... Disk drive manufacturing equipment maker Intevac Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVAC)") else Response.Write("(Nasdaq: IVAC)") end if %> spun away $1 1/8 to $5 7/8 after it said last night that it expects Q4 net losses of between $0.25 and $0.35 per share, short of First Call's three-analyst $0.21 loss estimate.
FOOL
ON THE HILL
An Investment Opinion
by
Warren Gump
Earnings Yield: A Tool for Investors
Numerous methodologies have been presented for individual investors to gauge the value of companies. One of the more prevalent is the price/earnings (P/E) ratio relative to the company's long-term growth rate, a.k.a. the PEG ratio. This ratio can be extremely valuable for investors as a guide to how much they're paying for a company. Another way to think about what you're paying for a company is to calculate the earnings yield, or the inverse of the P/E ratio.
If you are confused about the different ratios discussed above, there is a quick example calculating the value of them for Clorox Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLX)") else Response.Write("(NYSE: CLX)") end if %> at the bottom of this article. Also included in this list is the yield on the 30-year Treasury bond. Whoa there! What's that Treasury bond yield doing here? Aren't we talking about stocks? We are, but the value of stocks is related to that of bonds.
When you have a dollar to invest, you can choose many different alternatives, whether it be stocks, bonds, or Beanie Babies. Treasury bonds have a fixed cash flow payout, based on interest payments and the payment of principal at maturity. Since they are issued by the federal government, which literally has the ability to print money, the risk of not receiving this cash flow is considered minimal. Almost everyone considers them to be "risk-free" securities.
Stocks aren't as predictable as Treasury bonds. There is no definitive payout. In fact, many companies try to minimize (or not pay) a dividend so that their earnings can be reinvested to help the company grow in the future. Because the dividend payout depends on how a management team decides to allocate capital, it is usually not a good measure for determining overall return. This is where the earnings yield comes in. It gives you thumbnail sketch of the current return the company is earning on your investment.
How can this be used in practice? Clorox has a current earnings yield of 2.7% while the 30-year Treasury bond yields 5.1%. At face value, that doesn't make a whole lot of sense. The "risk-free" bond has a higher yield than a stock that doesn't provide any guaranteed return. What gives? It's the key to what makes investing profitable over time: growth.
Assuming that the 13% consensus annual growth rate furnished by First Call is accurate, let's see what happens to Clorox's reported earnings per share and earnings yield (based on yesterday's closing price).
Year 1998 2003 2008 2018 2028
Earnings $3.00 $5.53 $10.18 $34.57 $101.70
E. Yield 2.7% 4.9% 9.0% 30.5% 89.8%
Clorox Statistics:
Price: $113 5/16 (12/21 closing price)
Earnings: $3.00 (First Call calendar 1998 estimate)
Growth Rate: 13% (First Call consensus)
Ratios & Yields:
Price/Earnings (P/E) Ratio: 37.8 ($113.31/$3.00)
Price/Earnings-to-Growth (PEG) Ratio: 2.9 (37.8/13)
Earnings Yield: 2.7% ($3.00/$113.31)
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), another Fool David Marino-Nachison (TMF Braden), a new Fool
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