INVESTMENT OPINION
FOOL PLATE SPECIAL: Hewlett-Packard Joins the Bad-Earnings Parade
Some cautionary words from blue-chip HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> caused the Palo Alto, California-based and electronics giant to slump $9 1/2 to $79 1/2 this morning in blistering trading. On the heels of a disappointing quarterly earnings report from cellular and semiconductor behemoth MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>, Hewlett's new-found pessimism is a major disappointment to institutional investors -- so-called "chicken" stocks like Hewlett-Packard and Motorola are often the way that large portfolio managers get some exposure to the so-called technology sector.
Hewlett-Packard announced this morning that it was exiting the storage technology business and that order growth has slowed. Hewlett-Packard's immediate pain will come from its decision to close its money-losing computer disk-drive operation, taking a $150 million charge against earnings. Competition in the drive business has apparently become unbearable following SEAGATE TECHNOLOGY'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> consolidation with rival Conner Peripherals. In addition, a slowdown in orders across all products and geographies has caused order growth in the current quarter to fall below last quarter's 24%. Analysts were tripping all over themselves this morning to downgrade shares of Hewlett-Packard. It is this slowdown that is causing one of Hewlett's largest contract manufacturers, SCI SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCIS)") else Response.Write("(NASDAQ: SCIS)") end if %> to tumble $7 1/4 to $31 this morning.
Some are saying that it is clear that overall demand for computer systems and peripherals is slowing in light of the recent disappointments from DIGITAL EQUIPMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %>, Motorola and now Hewlett-Packard. However, there are a lot of company-specific issues here. Digital's lousy personal computer business is responsible for a lot of its problems. Motorola's exposure to the commodity end of the semiconductor business, the increasingly competitive cellular handset market, and Apple as a large customer all have seriously wounded it. As for Hewlett-Packard, more players in the high-end server industry, and sluggish sales of measurement instruments sold to semiconductor manufacturers have all spelled trouble for the high-margin products that have kept HP's profits afloat the last few quarters. Is every company in the computer systems, electronic components and electronic capital equipment industries doomed? This Fool doesn't think so.
UPS
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GENESIS HEALTH VENTURES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GHV)") else Response.Write("(NYSE: GHV)") end if %> enriched shareholders of GERIATRIC & MEDICAL COS. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GEMC)") else Response.Write("(NASDAQ: GEMC)") end if %> this morning when it announced that it was acquiring the nursing home and skilled care provider for $5 3/4 per share, boosting Geriatric & Medical $1 5/16 to $5 5/16. Larger nursing home providers continue to gobble to grow, making the undervalued small companies in the industry quite interesting.
LUMISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LUMI)") else Response.Write("(NASDAQ: LUMI)") end if %> surged $1 to $10 this morning after the company announced second quarter earnings of $0.13 EPS, one penny higher than consensus expectations. Interestingly enough, the company forecast lower revenues over the next two quarters which would shave four to five cents off net income, mostly concentrated in the third quarter. A delayed launching of its new Imagraph product was the reason cited for this slowdown.
BED BATH & BEYOND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BBBY)") else Response.Write("(NASDAQ: BBBY)") end if %> continued to receive institutional support today as Prudential raised its rating on the home decor retailer from hold to buy. Shares were up $3/4 to $19 1/2 after posting a similar gain yesterday.
DOWNS
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Other "TECHNOLOGY STOCKS" were pounded today after Motorola and Hewlett-Packard instilled fear in the heart of Wall Street over the past few days:
SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUNW)") else Response.Write("(NASDAQ: SUNW)") end if %> fell $3 3/4 to $49 7/8;
MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> gave up another $2 1/2 to $55 3/8;
MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> was off $4 to $115 1/2;
INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> lost $3 1/4 to $69 5/8;
COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> slumped $1 1/2 to $45 1/8;
DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %> was iced for $1 to $47 1/8;
GATEWAY COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GATE)") else Response.Write("(NASDAQ: GATE)") end if %> dropped $1 1/2 to $30 1/4;
CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCO)") else Response.Write("(NASDAQ: CSCO)") end if %> slid $3 7/8 to $54.
ANALOG DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADI)") else Response.Write("(NYSE: ADI)") end if %> declined the opportunity to explain why its shares are getting massacred, down $1 3/4 to $19 today after a similar rout yesterday on the heels of Motorola's bad news. Analog and Motorola's Semiconductor Products Group have similar product lines, meaning that Motorola's troubles might become Analog's woes when it's ready to report earnings.
HEALTH MAINTENANCE ORGANIZATIONS (HMOs) were all smashed today when UNITED HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNH)") else Response.Write("(NYSE: UNH)") end if %> warned of a second quarter disappointment this morning. This HMO sees operating earnings of $0.40 EPS to $0.45 EPS as a result of higher utilization -- well below the $0.66 EPS analysts were looking for. Shares slumped $11 1/2 to $32 3/4, pulling down the rest of the industry as well:
HEALTHSOURCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HS)") else Response.Write("(NYSE: HS)") end if %> slumped $1 1/8 to $14 5/8;
FOUNDATION HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FH)") else Response.Write("(NYSE: FH)") end if %> down $1 3/4 to $29 5/8;
OXFORD HEALTH PLANS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OXHP)") else Response.Write("(NASDAQ: OXHP)") end if %> off $5 3/4 to $28;
US HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USHC)") else Response.Write("(NASDAQ: USHC)") end if %> slipping $2 25/32 to $50 11/32;
SIERRA HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SIE)") else Response.Write("(NYSE: SIE)") end if %> tumbled $2 5/8 to $26 3/4;
ORNDA HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ORN)") else Response.Write("(NYSE: ORN)") end if %> dropped $2 1/8 to $22 1/2;
PHYSICIAN HEALTH SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHSV)") else Response.Write("(NASDAQ: PHSV)") end if %> was waxed for $2 to $17 1/2;
UNIVERSAL HEALTH SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UHS)") else Response.Write("(NYSE: UHS)") end if %> greased for $1 1/2 to $23 5/8;
AETNA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AET)") else Response.Write("(NYSE: AET)") end if %> the large multi-line insurance company that is buying US Healthcare, fell $6 3/4 to $58 1/2.
PHP HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPH)") else Response.Write("(NYSE: PPH)") end if %> appeared to have beaten consensus estimates this morning when it reported its fourth quarter earnings, but it is getting mashed with the rest of the health maintenance organizations (HMOs) anyway, down $3 1/8 to $24 7/8.
AMERICAN ONCOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AORI)") else Response.Write("(NASDAQ: AORI)") end if %> was crushed for $5 3/4 to $8 1/2 after the company reported that second quarter earnings would be about nine to ten cents on $47 million in revenues compared to expectations of $0.11 EPS.
A Prudential downgrade of Dow component EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> is what is responsible for the $5 5/8 to $69 7/8 drop in shares of the imaging company this morning, which alone is responsible for 16.62 points of the Dow Jones Industrial Average's drop.
PANDA PROJECT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PNDA)") else Response.Write("(NASDAQ: PNDA)") end if %>, down $1 1/2 to $9 1/4, has just enough money to last until mid-September, its auditor reportedly told the Wall Street Journal yesterday. The company is trying to arrange a private placement, but this has been made difficult by the fact that the auditor will not sign off on the financial statements.
MARISA CHRISTINA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MRSA)") else Response.Write("(NASDAQ: MRSA)") end if %> revised expectations for the second quarter and full fiscal year today, dropping $6 3/8 to $9 1/8 after the news hit. The company will make only five cents in the second quarter compared to expectations of six cents and "has revised its outlook for the remainder of the year due to difficult market conditions."
ALPHANET SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALPH)") else Response.Write("(NASDAQ: ALPH)") end if %> picked a very bad day to issue a profit warning for its second quarter, losing $1 5/8 to $7 in rapid order after it said it would only make $0.14 EPS in the upcoming quarter.
Some SAME-STORE SALES BLUES:
GYMBOREE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GYMB)") else Response.Write("(NASDAQ: GYMB)") end if %> reported a 12% drop in same-store sales, and slid $5 3/4 to $20 3/4 as a result.
A same-store sales drop at retailer ANNTAYLOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANN)") else Response.Write("(NYSE: ANN)") end if %> was responsible for a $2 3/4 to $13 3/4 drop in shares of the troubled women's clothier.
Disappointing same store sales at WABAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WBN)") else Response.Write("(NYSE: WBN)") end if %> caused the owner of B.J.'s, among other retail fronts, to give back $3 3/8 to $19 7/8.
GARDEN BOTANIKA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GBOT)") else Response.Write("(NASDAQ: GBOT)") end if %> saw June same-store sales rise only 2% even as total sales soared 71%, causing the personal care products retailer to lose $6 to $14 1/4.
Sluggish sales growth at stores open for more than one year was responsible for the $6 to $58 1/8 drubbing in WEST MARINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WMAR)") else Response.Write("(NASDAQ: WMAR)") end if %> stock took today.
Transmitted: 7/11/96