DJIA 9366.34 -33.33 (-0.35%) S&P 500 1245.02 -8.39 (-0.67%) Nasdaq 2326.82 -12.56 (-0.54%) Russell 2000 392.69 -2.57 (-0.65%) 30-Year Bond 94 10/32 -1 29/32 5.65 Yield
Go, Speed Racer, go! Well, actually, the Mach 5 probably wasn't NASCAR-certified, but if it was there would've been some thunder in the tank today. Several speedway stocks raced ahead today following yesterday's news that NASCAR will reclaim television, radio, and other electronic media rights from individual racetracks beginning in the 2000 season. While the impact of the decision will probably take another year or two to sink in as existing contracts expire, some watchers believe the increased bargaining power could mean tripled television revenues for track operators considering that NASCAR's popularity is at all-time highs -- Sunday's Dura-Lube/Big Kmart 400, broadcast on TNN, earned a 6.2 national cable rating, the highest ever for a Winston Cup event. Penske Motorsports <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPWY)") else Response.Write("(Nasdaq: SPWY)") end if %>, which Ladenburg Thalmann & Co. initiated coverage of with a long-term "buy" rating, zoomed up $4 to $32 1/2 today, while Speedway Motorsports <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRK)") else Response.Write("(NYSE: TRK)") end if %> accelerated $5 5/16 to $31 5/16 and International Speedway Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISCA)") else Response.Write("(Nasdaq: ISCA)") end if %> -- the apple of Fool Dale Wettlaufer's eye -- advanced $4 7/8 to $44 1/8.
"KITT, I think I'm in the mood for some Adult Contemporary." As ridiculous as the trials and tribulations of Michael Knight of TV's Knight Rider fame might look today, his legendary car is taking shape in the form of Clarion Corp.'s $1,300 AutoPC system. Along for the ride was Andrea Electronics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AND)") else Response.Write("(AMEX: AND)") end if %>, which moved ahead $1 1/8 to $7 3/8 after Clarion agreed to buy Andrea's AutoArray, an input device designed for AutoPC's speech interface, and offer it to its system dealers. Clarion's system, an in-dash audio/computing/navigation system that recognizes simple speech commands, uses Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Windows CE operating system and can give directions, play music, and read e-mail subject headings. Hey, $1,300 might seem like a lot for a CD changer you can talk to, but it's a lot more reasonable than the $11.4 million that the chatty TransAm reportedly cost. Samsung is developing its own version of an in-car computer, which isn't expected until later this year. It will reportedly cost about $900.
QUICK TAKES: Internet retailer Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> swung up $14 1/16 to $125 following the news that it bought a 40% stake (on a fully diluted basis) in Drugstore.com, a new online store offering more than 15,000 brand-name personal healthcare and beauty products and a licensed pharmacy... Real-time financial market data provider Data Broadcasting Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DBCC)") else Response.Write("(Nasdaq: DBCC)") end if %> added $3 1/4 to $16 3/4 after it announced a partnership with All-Tech Investment Group to provide online trading. Data Broadcasting is a part investor in financial news provider MarketWatch.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MKTW)") else Response.Write("(Nasdaq: MKTW)") end if %>... Web portal company Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %>, which won placement on Hewlett-Packard's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> OmniBook XE notebook PC and Brio PC lines, moved ahead $5 3/16 to $155 3/8 today.
Long-distance service reseller CTC Communications Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPTL)") else Response.Write("(Nasdaq: CPTL)") end if %> won $1 3/4 to $11 3/4 after settling a suit over commissions earned while CTC was a sales agent for Bell Atlantic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %>. Bell will give CTC cash and other considerations with the total amount of the settlement to remain confidential... Neonatal and pediatric care physician group Pediatrix Medical Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDX)") else Response.Write("(NYSE: PDX)") end if %> jumped up $6 1/2 to $31 after buying Tacoma, Wash.-based Southwest Washington Perinatal Services... Biopharmaceutical firm NeXstar Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NXTR)") else Response.Write("(Nasdaq: NXTR)") end if %> rose $1 1/4 to $12 3/4 after it said early testing of its MiKasome antibiotic for urinary tract infections was "especially encouraging."
Mall-based music and video retailer Trans World Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWMC)") else Response.Write("(Nasdaq: TWMC)") end if %> recorded gains of $2 5/16 to $14 after turning in Q4 EPS of $0.95, up from $0.67 last year and beating First Call's $0.80 consensus estimate... Human antibody-based products and services company Serologicals Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SERO)") else Response.Write("(Nasdaq: SERO)") end if %>, a Daily Double last fall, improved $2 5/16 to $17 13/16 after it said it expects Q4 EPS to be in line with Wall Street's estimates when results are reported Tuesday. Four analysts surveyed by First Call expect EPS of $0.17 for the period... Telecommunications network capacity company Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %>, a hero yesterday, improved an additional $1 1/16 to $28 5/16 this morning. A Reuters article said last night that long-distance company Sprint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>, which accounts for about 53% of Ciena's fiscal 1998 revenues, elected to stay with Ciena products this year after considering other options.
Security First Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SONE)") else Response.Write("(Nasdaq: SONE)") end if %>, which develops Internet applications for financial institutions, locked up $13 1/16 to $69 after the Royal Bank of Canada agreed to pay $50 million in license and development fees over the next five years to implement Security First's Virtual Financial Manager suite... Discount airline Virgin Express Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VIRGY)") else Response.Write("(Nasdaq: VIRGY)") end if %> flew ahead $1 3/8 to $11 after calling a shareholder meeting to approve a planned buyback of up to $15 million worth of common shares... Skin replacement company Organogenesis <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ORG)") else Response.Write("(AMEX: ORG)") end if %> grafted on $1 3/8 to $14 5/16 after it said tests of Apligraf, a developmental burn treatment, showed that treatment with Apligraf resulted in significantly more burns being assessed as "normal'' versus certain other graft treatments.
Consumer textiles company Fruit of the Loom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTL)") else Response.Write("(NYSE: FTL)") end if %> stitched up $1 5/16 to $13 1/16 after Morgan Stanley Dean Witter upgraded the stock to "outperform" from "neutral," setting a $20 price target on the shares... Networking software provider Novell Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVL)") else Response.Write("(Nasdaq: NOVL)") end if %> took on $1 7/8 to $20 7/8 after Morgan Stanley Dean Witter upgraded the stock to "outperform" from "neutral." For an October Duel over the stock, click here... Instant photographic imaging products maker Polaroid Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRD)") else Response.Write("(NYSE: PRD)") end if %> developed $2 to $24 3/4 after Merrill Lynch raised its long-term rating to "buy" from "accumulate" and its intermediate-term rating to "accumulate" from "neutral"... Off-patent pharmaceutical company Watson Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WPI)") else Response.Write("(NYSE: WPI)") end if %> popped up $2 3/4 to $48 after Warburg Dillon Read upgraded the stock to "strong buy" from "buy," citing valuation.
Earnings Movers
Advanced Digital Information <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADIC)") else Response.Write("(Nasdaq: ADIC)") end if %> up $4 1/2 to $17 7/8; fiscal Q1 EPS: $0.30 vs. $0.24 last year; estimate: $0.20
Alpharma Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALO)") else Response.Write("(NYSE: ALO)") end if %> up $4 5/8 to $38 5/8; Q4 EPS: $0.32 vs. $0.26 last year; estimate: $0.30
Gap Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> up $1/8 to $62 7/8; fiscal Q4 EPS: $0.53 vs. $0.36 last year; estimate: $0.50
ICH Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IH)") else Response.Write("(AMEX: IH)") end if %> up $1 1/4 to $7 1/4; Q4 EPS: $0.56 vs. $0.38 last year; no estimate
JB Oxford Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBOH)") else Response.Write("(Nasdaq: JBOH)") end if %> up $27/32 to $9 15/16; Q4 EPS: $0.08 vs. loss of $0.05 last year; no estimate
SCM Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCMM)") else Response.Write("(Nasdaq: SCMM)") end if %> up $5/8 to $89 7/16; Q4 EPS: $0.26 (before items) vs. $0.16 last year; estimate: $0.25
Shareholders jumped out of The Children's Place <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLCE)") else Response.Write("(Nasdaq: PLCE)") end if %> today, even though the mall-based retailer of value-priced kids clothes reported adult-sized sales and earnings for the fourth quarter. The company's shares finished the day down $5 at $28 1/4. The main bummer seems to be a registration filing late yesterday indicating that a group of long-time shareholders will dispose of 2.7 million shares in a secondary public offering. Senior Children's Place executives and directors will add in another 1.3 million shares. Although the selling shareholders will continue to own a majority stake in the firm, investors rightly took this as a sign that knowledgeable investors believe this is a good time to stash some profits in the toy box. Still, considering the sales and income growth figures the company has been putting up recently, investors may want to take a closer look at this stock market whippersnapper. For more details, see today's Fool Plate Special.
Computing products distributor CHS Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HS)") else Response.Write("(NYSE: HS)") end if %> tanked $2 3/8 to $7 13/16 after announcing preliminary Q4 EPS of $0.47, up from $0.45 a year ago but below the current Zacks mean estimate of $0.66. The company said it has discovered discrepancies in the amount of vendor incentives recorded in Q4 from the manufacturers whose products it distributes, adding that it is investigating the problem. Final results for the quarter and fiscal 1998 will be reported "no later than the week of March 15," the company said. Besides the typical uncertainty that the words "discovered" and "discrepancies" breed when used together in the same sentence by a company, investors may also be reacting negatively to the fact that today's warning ends CHS's record of beating analysts' estimates for eight straight quarters. J.C. Bradford cut its rating on the firm to "neutral" from "strong buy."
QUICK CUTS: Medical devices maker Medtronic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> dropped $3 9/16 to $72 3/8 after reporting fiscal Q3 EPS of $0.36 (before merger-related charges), up from last year's $0.29 but a penny shy of the First Call mean estimate. Prudential Securities reportedly reduced its fiscal 2000 earnings estimate while Warburg Dillon Read trimmed its 2000 and 2001 forecasts... Chewing gum king William Wrigley Jr. Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WWY)") else Response.Write("(NYSE: WWY)") end if %> was stuck with a loss $5 1/16 to $92 9/16 after Donaldson, Lufkin & Jenrette lowered its rating to "underperform" from "market perform"... Outsourced pharmaceutical manufacturing services firm ChiRex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRX)") else Response.Write("(Nasdaq: CHRX)") end if %> slid $5/8 to $21 3/8 after announcing last night a secondary offering of 2.5 million shares. The proceeds from the shares, which are expected to be offered next month, will be used by the company to pay down debt.
Life sciences company Monsanto <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> fell $1 3/4 to $46 1/4 after ending development of two experimental cancer drugs, one of which was in the last stage of testing required for FDA approval. For more details on this news and other developments in the drug world, scarf down a serving of this morning's Breakfast With the Fool... Small household appliance maker Windmere-Durable Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WND)") else Response.Write("(NYSE: WND)") end if %> slid $11/16 to $4 3/4 after reporting Q4 EPS of $0.02, down from last year's $0.45 and below the First Call mean estimate of $0.20... Skiing and outdoors clothing maker The North Face <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNFI)") else Response.Write("(Nasdaq: TNFI)") end if %> skidded $3/4 to $12 1/4 after Morgan Stanley Dean Witter cut its rating to "outperform" from "strong buy."
Enterprise application software company BMC Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMCS)") else Response.Write("(Nasdaq: BMCS)") end if %> lost $5 7/16 to $41 9/16 after Prudential Securities lowered its rating on the company to "accumulate" from "strong buy." Yesterday, the company filed an amended fiscal 1998 10-K and amended 10-Qs for the past three quarters with the SEC, which changed the accounting treatment of the company's acquisition of BGS Systems last year... Boating supplies retailer West Marine <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WMAR)") else Response.Write("(Nasdaq: WMAR)") end if %> sank $1 1/4 to $9 1/16 after posting a Q4 loss of $0.44 per share. Backing out roughly $5 million in expenses for inventory adjustments and bad debt gives a loss of around $0.14 per share, which is still worse than the loss of $0.03 per share expected by the five analysts surveyed by Zacks.
Mental illness programs and services developer PMR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMRP)") else Response.Write("(Nasdaq: PMRP)") end if %> lost $13/16 to $7 1/16 following a downgrade to "long-term attractive" from "strong buy" by SunTrust Equitable Securities. Acute care hospital operator and manager Province Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRHC)") else Response.Write("(Nasdaq: PRHC)") end if %> also dropped $2 3/8 to $15 1/8 on a downgrade to "long-term attractive" from "buy" by the same brokerage... Cable TV company Cablevision Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CVC)") else Response.Write("(AMEX: CVC)") end if %> was scrambled for a $3 1/4 loss to $63 3/4 after the New York Yankees announced it will merge its business operations with the NBA's New Jersey Nets, which puts a damper on Cablevision's lingering desires to buy the Bronx Bombers and/or their TV broadcast rights... Internet services provider MindSpring Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSPG)") else Response.Write("(Nasdaq: MSPG)") end if %> fell $3 13/16 to $85 7/16 after saying in a federal filing that it expects to "incur net losses into 2000" as a result of increased amortization stemming from its recent acquisition of Spry and NETCOM. The IBES mean estimates had called for fiscal 1999 EPS of $0.94 and 2000 EPS of $1.74.
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
Financial Karma's Gonna Get You
Attention high-tech investors! Are you ready for the conversion of acquisition-related accounting for R&D intensive companies? Get pumped, baby. That's what appears to be happening with the Financial Accounting Standards Board, which yesterday proposed a new standard that calls for capitalization of acquired R&D rather than its immediate expensing. Yes, that's right, the people that brought you the beloved FASB Statement 125 on gain-on-sale accounting for securitizations of loans, which allows a company to estimate unsure profits and puff up the balance sheet with the resulting "profits and intangible assets" wants to disallow a policy that lets a company immediately expense what are certain to be future expenses, pulling those expenses into the current year and immediately diminish assets and owners' equity.
I can't account for the way FASB works, but I agree with its current thinking on this issue. There are numerous examples of companies that have abused the ability to take an immediate write-off of expenses they will incur in the future. These companies believe that the market will ignore the large one-time expenses because everyone pays attention to "earnings before extraordinary items."
As Alex Schay wrote late last year, "The standard for many years (reinforced by SFAS No. 4) has required that R&D costs acquired in a business combination be treated as if they had been incurred by the acquiring company. That is, they must be expensed as if they were "home grown" at the acquiring company's labs. However, this has created a great incentive for companies that engage in purchase transactions (where goodwill is created) to assign a very high value to acquired R&D -- with very little of the overall purchase price being assigned to goodwill." This allows the immediate expensing of the excess of purchase price over book value, which does not weigh down future earnings per share with amortization of acquisition-related goodwill.
Many executives believe the market will not appreciate the per-share earnings of the company going forward when they include amortization of goodwill. But here's the rub. The market doesn't pay that much if any attention to goodwill amortization expenses anyway. The first reason has to do with the fact that they're non-cash expenses. If it denotes an expense that will not recur, then it has little meaning. But where it does have meaning is where the expense will recur. Some people treat depreciation as an expense that can be ignored because it's a non-cash expense. Do this at your own risk.
Depreciation is a memorandum denoting the consumption of an asset that will most likely need to be replaced. That replacement cost will be paid in cash. In a steady-state situation, depreciation really is a cash expense, because the outflow of cash to replace assets will match pretty closely the non-cash depreciation expense that masks cash inflows. That's why earnings according to Generally Accepted Accounting Principles (GAAP) aren't always screwed up, even though we find very entertaining and productive sport in finding the inadequacies of GAAP.
By writing off acquired R&D expenses all at once, no matter whether you call them that or "goodwill" or some random name like "George," the financial statements of companies engaging in this sort of accounting mis-state the amount of financial resources investors have devoted to the company. If one can't tell how much resources have been invested to create a dollar of earnings, one cannot get a good idea of how much resources it will take in the future to create another dollar of earnings. Without that information, it can be difficult to know the real quality of today's earnings and how much the company can grow in the future. Depriving the market of information makes for an inefficient market. If there were a capital markets karma, every CEO or CFO who enjoys a perpetually overvalued stock in this lifetime would suffer through a few lifetimes of being an executive for a wonderful company whose stock is perpetually and severely undervalued.
Luckily, we don't have to rely on karma to set things straight -- the market is fast-moving wheel of life that takes care of instant karma. The market is made up of dumb players within a smart system. Perpetual overvaluation or undervaluation is rare. The market might be inaccurate in the short term, but over the long term it's pretty accurate at assessing companies' values. Why, for instance, have so many so-called "roll-up" companies fallen apart over the years after experiencing shorter periods of euphoric pricing? If they issue stock to acquire lots of small companies and structure each transaction as a pooling of interests, without any goodwill being marked up on the balance sheet, then their apparent return on capital can be much higher than the actual return on capital as accounted for under purchase transactions. The market knows that no matter what your accounting technique -- pooling or purchase -- there's no difference in the economic substance of the two.
Tomorrow I'll go into why investors should cheer the possibility of a change in accounting rules dealing with acquired R&D.
Discuss this column on the FOTH message board.
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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |