DJIA 9274.89 -88.57 (-0.95%) S&P 500 1230.13 -23.91 (-1.91%) Nasdaq 2321.89 -83.66 (-3.48%) Russell 2000 398.44 -7.72 (-1.90%) 30-Year Bond 97 15/32 -1 23/32 5.42 Yield
Truck and bus maker Navistar International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAV)") else Response.Write("(NYSE: NAV)") end if %> rose $2 to $35 1/4 on the back of a strong fiscal Q1 earnings report. The company's shares stalled yesterday when earnings came out, but they were helped into gear today thanks in part to Salomon Smith Barney's reiteration of its "buy" rating. EPS came in at $0.91, more than doubling last year's $0.42 result and topping the First Call mean estimate of $0.83. "While we continue to benefit from strong industry demand, our underlying performance also reflects systematic improvements in our approach to the business, which will enable us to succeed regardless of industry volumes," Chairman, President, and CEO John Horne said. Given the Q1 results, Horne looks well on his way to delivering on the many long-term promises he has made to shareholders over the past two years, such as achieving a 17.5% return on equity, reducing suppliers from 1,000 earlier this decade to about 400, and cutting the time it takes to assemble a truck by 30%.
Philadelphia-based aftermarket auto parts retailer The Pep Boys - Manny, Moe & Jack <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PBY)") else Response.Write("(NYSE: PBY)") end if %> moved up $1 1/16 to $18 9/16 after reporting that its same-store sales in Q4 increased 13% from a year ago, its fourth consecutive quarter of positive "comp" numbers following three periods of negative results. Total sales for the quarter were up 12.1% year-on-year to $563.2 million, thanks in part to the openings of an additional 10 Pep Boys supercenters during the period. By January 2000, the company plans to roll out an additional 25 supercenters, which typically feature 18,200 square feet of retail space stocked with about 28,000 stock-keeping units (or SKUs). The supercenters also feature 12 auto service bays, a feature "the boys" feel differentiates their stores from other auto parts vendors by offering customers the opportunity to buy parts and then have them installed at the same location.
QUICK TAKES: Medical devices maker Boston Scientific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> gained $13/16 to $26 13/16 after announcing it will cut 2,000 jobs over the next year as it integrates last year's acquisition of Schneider Worldwide and streamlines its manufacturing operations... Pharmaceutical developer Alpharma <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALO)") else Response.Write("(NYSE: ALO)") end if %> picked up $1 1/2 to $32 1/2 after Bear Stearns started coverage with a "buy" rating and a 12- to 24-month price target of $50 per share... Database marketing software developer Group 1 Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSOF)") else Response.Write("(Nasdaq: GSOF)") end if %> moved up $2 7/16 to $9 15/16 after posting fiscal Q3 EPS of $0.22, nearly doubling the $0.12 earned a year ago. Revenues rose 13% year-on-year in the quarter to $18 million.
Internet service provider Prodigy Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRGY)") else Response.Write("(Nasdaq: PRGY)") end if %> added another $7 5/16 to $35 7/16 today after rising more than 87% yesterday on its first day of trading... European cable-based communications network operator United Pan-Europe Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UPCOY)") else Response.Write("(Nasdaq: UPCOY)") end if %> advanced $8 7/32 to $41 from an initial public offering price of $32.78 per American depositary share today... Enterprise software developer Project Software & Development <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSDI)") else Response.Write("(Nasdaq: PSDI)") end if %> tacked on $5 3/4 to $29 5/8 after Bear Stearns started coverage of the stock with a "buy" rating and a 12-month price target of $36 per share.
Financial market information publisher Individual Investor Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INDI)") else Response.Write("(Nasdaq: INDI)") end if %> moved up $2 1/16 to $8 1/4 after the Yahoo! Finance area of Web portal Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> began providing links to articles from the company's Individual Investor Online website... Group employee benefits provider Delphi Financial Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DFG)") else Response.Write("(NYSE: DFG)") end if %> gained $5 3/8 to $47 7/8 after reporting Q4 operating EPS of $1.24 (excluding investment gains and losses), beating the First Call mean estimate of $0.92... Aircraft ground support and fueling services provider Hudson General Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HGC)") else Response.Write("(AMEX: HGC)") end if %> added $5 1/2 to $73 1/2 after privately held Ranger Aerospace Corp. increased its offer in a four-way bidding war for the company to $72 per share in cash from an earlier bid of $62 per share in cash.
Network engineering and consulting firm Micros-To-Mainframes <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTMC)") else Response.Write("(Nasdaq: MTMC)") end if %> picked up $1 13/32 to $6 15/32 after posting fiscal Q3 EPS of $0.03, beating last year's results by a penny... Enterprise application integration (EAI) software developer and recent Daily Double New Era of Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEON)") else Response.Write("(Nasdaq: NEON)") end if %> shined $5 3/4 to $63 3/4 after CFO Steve Webb told Reuters that there is "significant upside" to analysts' current revenues and earnings estimates for fiscal 1999... Haley brand golf apparel designer Sport-Haley <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPOR)") else Response.Write("(Nasdaq: SPOR)") end if %> marched $1 1/8 higher to $10 1/8 after saying it has agreed to be acquired by an unidentified third party for an unspecified amount of cash.
Auditing company Profit Recovery Group International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRGX)") else Response.Write("(Nasdaq: PRGX)") end if %> climbed $1 1/2 to $34 1/8 following a Piper Jaffray upgrade to "strong buy" from "buy" based on the company's competitive advantage over its smaller rivals and its growth prospects... Helix Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HELX)") else Response.Write("(Nasdaq: HELX)") end if %>, which develops cryogenic and vacuum technologies used in semiconductor manufacturing, twisted its way $1 3/16 higher to $22 1/16 after posting breakeven Q4 results, topping the First Call mean estimate for a loss of $0.05 per share.
IPO Friday: Three enterprise software developers rose in their first day of trading today. Serena Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SRNA)") else Response.Write("(Nasdaq: SRNA)") end if %> jumped $2 1/8 to $15 1/8 after raising $78 million in its initial public offering as it sold 6 million shares, or 25% of the company, at $13 a share, which was higher than the estimated range of $9 to $11. Meanwhile, Onyx Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONXS)") else Response.Write("(Nasdaq: ONXS)") end if %> traded up $10 9/16 to $23 9/16 after raising $40.3 million by selling 3.1 million shares, a 19% stake, for $13 a stub. Finally, Bottomline Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EPAY)") else Response.Write("(Nasdaq: EPAY)") end if %> rose $7 15/32 to $20 15/32 after selling 3.4 million shares at a price of $13 per share.
PC power Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> lost $12 to $89 7/8 today after both Salomon Smith Barney and BancBoston Robertson Stephens said in research notes that they expect the company to come in a little light on revenues for the fourth quarter. According to reports, BBRS' Dan Niles expects Dell's sales to come in about $300 million short of his Q4 $5.5 billion estimate, due to "intensified [competitive pressure], especially in the corporate market." While both brokerages believe Dell is on track to meet First Call's $0.31 EPS projection, the bigger question may be how competitor Compaq's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> efforts to boost sales with increased marketing and direct sales initiates are affecting the balance of power in the corporate and consumer markets. This potential developing situation, as the Fool's Dale Wettlaufer pointed out in today's Lunchtime News, won't show its true face for several quarters, and it appears Niles and some of his compatriots hope to catch on early.
The outlook gets fuzzier and fuzzier for telecommunications switching and access products maker World Access <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WAXS)") else Response.Write("(Nasdaq: WAXS)") end if %>, which announced a downbeat earnings outlook for 1999 today on top of Q4 EPS that underperformed a January warning. The stock lost $3 5/16 to $8 3/16 today after the company said it expects 1999 EPS of $0.75, compared with First Call's current $1.57 estimate. Fourth quarter 1998 EPS was $0.08 before charges, down from the year-ago $0.11 figure and Wall Street's $0.15 projection. Last month, the company guided investors toward the $0.15 figure from expectations of $0.31 per share because of lower-than-expected margins and sales in certain business lines. At least five brokerages downgraded the stock today, including BT Alex. Brown, which World Access hired last month to help look at "strategic alternatives" for its non-core units. Those alternatives, whatever they may be, should complement a planned consolidation that the company hopes will cut costs significantly.
QUICK CUTS: Internet venture capital firm CMGI Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %> lost $8 to $104 this morning after saying it is "generally supportive" of the planned deal between Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> and USA Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USAI)") else Response.Write("(Nasdaq: USAI)") end if %>. Shares of CMG and Lycos advanced yesterday on reports that 20% Lycos owner CMGI didn't back the deal... Internet Portal company Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> fell $7 1/2 to $151 despite receiving a "buy" rating from ING Baring Furman Selz in new coverage today. The brokerage also started coverage on several other portals today: Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> lost $9 7/16 to $95 1/16 despite earning a "buy" rating and Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> dropped $3 3/16 to $62 3/8 following a new "hold"... Enterprise resource planning (ERP) software firm J.D. Edwards & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JDEC)") else Response.Write("(Nasdaq: JDEC)") end if %> dropped $3 7/8 to $15 after saying it expects fiscal Q1 EPS of between $0.02 and $0.04, missing the analysts' $0.09 consensus estimate. The Fool's Alex Schay takes a longer look at J.D. Edwards in today's Boring Portfolio report.
Customer service management systems developer TeleTech Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TTEC)") else Response.Write("(Nasdaq: TTEC)") end if %> fell $1 15/16 to $7 1/2 after it said it expects full-year 1999 operating margins to be flat with 1998 numbers. The company said Q4 EPS was $0.09, a penny above year-ago levels but a penny off estimates... Telecommunications network synchronization products and integrated circuits maker SymmetriCom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYMM)") else Response.Write("(Nasdaq: SYMM)") end if %> lost $1 1/4 to $6 5/8 after the company announced plans to sell its Linfinity Microelectronics subsidiary to Microsemi Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSCC)") else Response.Write("(Nasdaq: MSCC)") end if %> for about $24.1 million in cash... Cable-based information services provider Source Media <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SRCM)") else Response.Write("(Nasdaq: SRCM)") end if %> slid $2 15/16 to $21 on news that United Video Satellite Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UVSGA)") else Response.Write("(Nasdaq: UVSGA)") end if %> will buy 842,000 shares of source media for about $14.25 each -- a 40% discount to yesterday's closing price -- as one of the terms of a joint venture between the companies developing content for cable and satellite television.
Level 8 Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LVEL)") else Response.Write("(Nasdaq: LVEL)") end if %>, a provider of middleware software products and services utilizing messaging, slipped $3/4 to $10 3/4 as the company said it expects to restate 1998 financial statements because of a new SEC policy affecting a $6.5 million charge in connection with an acquisition... Number-two sporting goods retailer Gart Sports Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRTS)") else Response.Write("(Nasdaq: GRTS)") end if %> lost $1 1/4 to $6 7/8 today. CEO Doug Morton reportedly said at a conference yesterday that the company plans to sell merchandise online, but didn't elaborate... Chase Manhattan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> dropped $2 1/16 to $74 1/16 after its mortgage subsidiary agreed to buy the branch networks of First Town Mortgage Corp. and HomeSouth Mortgage Corp., assimilating 27 new locations. Financial terms weren't available.
Canadian networking company Newbridge Networks Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NN)") else Response.Write("(NYSE: NN)") end if %> shed $2 11/16 to $24 7/16 following reports that a unit of Canada's of WIC Western International Communications may drop a contract with Newbridge and Alcatel Alsthom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> of France worth as much as $500 million that may now go to Cisco <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>... Shares of VerticalNet <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VERT)") else Response.Write("(Nasdaq: VERT)") end if %>, the operator of business-to-business community websites that picked up $29 3/8 in its IPO yesterday, returned $1 1/2 to $43 7/8 today.
Earnings Movers
Brooktrout <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRKT)") else Response.Write("(Nasdaq: BRKT)") end if %> down $2 3/16 to $10 15/16; Q4 EPS $0.16 vs. $0.15 last year; estimate: $0.18
Chieftain International <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CID)") else Response.Write("(AMEX: CID)") end if %> down $1 to $10 15/16; Q4 EPS loss of $0.40 vs. $0.38 profit last year; estimate: loss of $0.07
Franklin Electronic Publishers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FEP)") else Response.Write("(NYSE: FEP)") end if %> down $1 1/4 to $6; fiscal Q3 EPS loss of $0.15 vs. $0.15 profit last year; no estimate
Guitar Center Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GTRC)") else Response.Write("(Nasdaq: GTRC)") end if %> down $4 15/16 to $17 3/4; Q4 EPS $0.30 vs. $0.24 last year; estimate: $0.30
NuCo2 Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NUCO)") else Response.Write("(Nasdaq: NUCO)") end if %> down $5/8 to $8 1/4; fiscal Q2 EPS loss of $0.30 vs. loss of $0.20 last year; estimate: loss of $0.21
Sola International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOL)") else Response.Write("(NYSE: SOL)") end if %> down $1 5/8 to $11 1/16; Q3 EPS $0.25 (excluding charges) vs $0.44 last year; estimate: $0.39
Spacehab <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPAB)") else Response.Write("(Nasdaq: SPAB)") end if %> down $3/8 to $8 7/8; fiscal Q2 EPS loss of $0.17 vs. $0.43 profit last year; estimate: $0.31
FOOL
ON THE HILL
An Investment Opinion
by
Warren Gump
A Delicious Stock
Using your own experience is always a terrific way to find stocks. Any investor who has ever tried eating at the Cheesecake Factory <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAKE)") else Response.Write("(Nasdaq: CAKE)") end if %> should have wondered whether this company is publicly traded. It is rare when you can go to one of this company's 27 restaurants and have a wait of less than an hour. When living in Atlanta a couple of years ago, the only way I found to avoid a wait was arriving between 10:00 a.m. and 10:30 a.m. on Sunday morning, right after the restaurant opened. Drop in after 11:00 a.m., though, and your wait is almost always an hour or two.
When you find a store and concept you like, many other people will often already know about the product or company. Investigating the stock, you find that it has a high price/earnings multiple, high leverage, or some other characteristic that is unattractive. That generally has been the case with this company, as well. At times, The Cheesecake Factory has been trading for more than 40x prospective earnings. Perhaps that's not too high considering the outstanding prospects for this wonderful chain. Nonetheless, I prefer purchasing the stock when it's a little less expensive, providing a more significant margin of safety.
Because this company is in the restaurant business, which is notoriously fickle and volatile, the stock market provides numerous opportunities to get in at more reasonable prices. Adverse quarterly shifts in same-store sales, bad weather, high food costs, store opening expenses, or short-term operational problems often occur and send short-term investors scurrying for shelter. These stocks regularly rise and fall 15%-25% on the smallest bit of information. I happen to like the volatility associated with restaurant companies because it provides numerous low-priced entry points into long-term winners. And I do think Cheesecake Factory is going to be a force in the restaurant business in the years ahead.
The company's stock has fallen from its December high of $30 3/8 to $20 1/4, recording earnings that were not only below expectations, but also below the prior year. For Q4, the company earned $0.15 per share compared to $0.16 last year. Such numbers certainly are not indicative of a strong growth company.
What happened? Beyond being in the restaurant business, the Cheesecake Factory operates a manufacturing facility that makes over 50 varieties of cheesecakes. This 45,000 square foot facility, which quadrupled production capacity, was opened in 1995 and has been a continual source of problems. The primary issue facing the plant is that the facility has too much capacity for the company's current needs. In early 1998, the plant was only operating at about a third of its ultimate capacity.
Only about 30% of the facility's production is used in the company's restaurants. The majority of production goes to third parties, including warehouse clubs, other restaurant concepts, and foodservice distributors. While restaurant sales have continued to grow rapidly (28% in 1998), bakery sales growth has been more tepid (14% in 1998). Without faster growth of third-party sales, the prospects for this plant quickly reaching efficient operating levels is dim.
To address this issue, the company recently ramped up promotional spending to boost bakery sales. It was successful in this endeavor (Q4 bakery sales were up 40%), but a significant portion of the incremental sales were in lower margin products. In addition, the surge in demand caused significant labor inefficiencies. To top things off (this is starting to sound like a plot for a potential I Love Lucy episode), cream cheese and manufacturing cream also hit record highs during the quarter. The confluence of these three events at the manufacturing facility led to the poor quarterly results.
Many people have suggested that the company sell off the manufacturing plant and just focus on its restaurants. Management, however, doesn't seem inclined to relinquish control over the centerpiece of their restaurant concept. In a way, I can't blame them. The bakery items are a "signature" of the restaurants and could provide significant growth.
If the changes implemented at the manufacturing plant work and the problems get resolved, management could be correct in holding onto the plant. If the problems persist, however, they will need to look at alternatives. Outsourcing has become quite prevalent in consumer goods and may be worth further evaluation. Without manufacturing worries, the company could focus on what it does best... developing and operating restaurants.
Among the 200 largest chains in the nation, The Cheesecake Factory leads them all in terms of revenue per restaurant. Its units averaged $9.8 million in revenue in 1997, up from $9.3 million in 1996. The recipe for success involves operating large stores with over 200 menu items crossing numerous styles of cuisine. To check out the company's offerings, click here for an on-line menu. Despite the wide variety of its offerings, everything I've eaten at the chain has tasted excellent.
Beyond providing quality food, the company also invests heavily in its facilities, spending $375 to $425 per square foot to create what I would describe as a surreal, fantasy-like environment. Importantly, the restaurants are all located in high-traffic areas that fuel high revenues. While the building and structure are an important element of the Cheesecake Factory experience, the food is what keeps people coming back again and again. Planet Hollywood <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHL)") else Response.Write("(NYSE: PHL)") end if %> and Rainforest Cafe <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %> could likely have avoided some of their problems if they remembered this little truism regarding the restaurant business.
The Cheesecake Factory's restaurant performance continues to shine. During Q4, same-store sales jumped an impressive 6.2% on top of a 6.4% jump the prior year. For all of 1998, same-store sales were up 4.0%. This chain has legs. And it plans to continue expanding.
The objective this year is to expand restaurant operating weeks by at least 25%. Two new restaurants are scheduled for opening this month, one in San Diego, the other in Thousand Oaks, CA. Looking at the company's balance sheet, financing future growth should not be a problem. The company has $52 million in cash and no long-term debt. The individualized and intricate nature of each store sometimes causes delays in openings (and the stock price dips temporarily on such news), but that does not impact long-term prospects.
Investors looking for an exciting, growing restaurant chain may want to take a further look at The Cheesecake Factory. First Call consensus estimates call for the company to earn $0.92 per share this year and $1.18 in 2000. The long-term growth rate is forecasted to be 27%. Shareholders in this stock will not have a smooth ride, but they may enjoy the company's success in the years ahead.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
|
Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |