CONFERENCE CALLS
None
FOOL PLATE SPECIAL
Price to Fiber -- A New Ratio?
Everyone loves to hate ol' NETCOM ON-LINE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETC)") else Response.Write("(NASDAQ: NETC)") end if %>. Sitting near its 52-week low, it is probably one of the few online concerns to rank lower than AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> in the minds of casual investors and market aficionados everywhere. Despite the $110.8 million cash hoard that the company said it was holding during its last reported quarter, there is a lot not to like. Plunging gross margins, microscopic subscriber numbers and a yawning, cash-flow-negative balance sheet are but a few of the more charming elements to this wounded high-flyer. Last quarter, gross margins were down to 31% from 33.4% during the prior quarter with amortized subscriber acquisition expenses chewing a huge hole in the company's cash flow. In fact, "Product Development" was the only expense that did not increase faster than revenues -- not exactly the area you want to be skimping on if you are a consumer service.
But then again, these are all known facts that have been well discounted into the price of the stock. Net the sizable chunk of cash, the company trades at 0.86 times trailing sales -- hardly a stratospheric valuation. With more than half a million nationwide subscribers, Netcom ranks as the number one pure commercial Internet provider in the United States. Unfortunately, this is a business with ample competition, few barriers to entry and very little in the way of a moat to dig around your core operations. Although the company today trades close to its book value of $14.70 a share, book value is eroding steadily as the "Retained Losses" section of the Balance Sheet grows and grows and grows and grows. As for white knights, forget it for now -- Netcom's very wise board put together a "poison pill" plan that kicks in should anyone amass more than 15% of the shares outstanding, effectively blocking any outside bidder from taking over the company for its assets.
So why do I think that Netcom may not be reflecting its intrinsic value? Let me count the POPs (Points of Presence). One POP, two POP, red POP, blue POP. The last time the company counted, there were about 330 of the network points of presence. These POPs are connected to Netcom's T-3 backbone lines and allow online consumers to access the Internet. Looking at Netcom's historical balance sheet, you can see that the Cash Flows from Investing have totaled a negative $66 million since 1993 as the company has poured money into the ground in the form of fiber. "Thar's cable in them thar hills!" At its current rate of $10 million in fiber per quarter, in eighteen months the company will be out of cash and have $140 million worth of network in the ground.
Facing a skeptical market and unable to float a secondary offering with a paltry $15 million line of credit to its name, the company will have to revisit that little poison pill rule as it ponders the possibility of being bought purely for its network assets. Even after a month of falling, MFS/UUNet is still being purchased at about 4.0 times cable in the ground. If Netcom could rate 3.0, that would be a $420 million price tag paid by some happy telco who would not have to put in the fiber themselves. Trading today at 1.1 times fiber plus the cash it has in the bank, one could make a convincing case that Netcom is not reflecting the value of the assets it has in the ground and in the bank. Shares of Netcom POP-ped up $2 1/2 to $18 1/2 today on no apparent news.
UPS
CITIZENS BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CIBC)") else Response.Write("(NASDAQ: CIBC)") end if %> and CRESTAR FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CF)") else Response.Write("(NYSE: CF)") end if %> hooked up this morning in a deal worth $774 million based on Crestar's Friday closing price. Citizens is trading up $14 1/4 at $46 1/2 while Crestar is down, losing 2 5/8 to $58 3/4.
PENN NATIONAL GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PENN)") else Response.Write("(NASDAQ: PENN)") end if %> is off to the races this morning, having announced today that it is buying Pocono Downs's standardbred horse racing facility and two off-track wagering (OTW) facilities for $47 million. It looks as though investors are shrugging off the company's warning of flat earnings for the coming quarter, as shares of Penn are up $4 1/4 to $28 3/4.
Don't like your old heart? For the price of a small car, you'll be able to purchase a synthetic ticker. That's the goal of ABIOMED, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ABMD)") else Response.Write("(NASDAQ: ABMD)") end if %>, which announced today that it has won a $8.5+ million contract from the National Heart, Lung and Blood Institutes (NHLBI) to complete readiness testing of its battery-powered implantable total artificial heart, in preparation for human trials. AbioMed shares were pumped up $2 1/8 to $14 1/2 on heavy volume.
OVID TECHNOLOGIES INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OVID)") else Response.Write("(NASDAQ: OVID)") end if %> got a little boost from a mention in an offline investor's magazine this weekend. Saying that Ovid, "could be one of the important international providers of scientific information over the Net" is all it took to move the stock $1 1/8 to $10 1/4 this morning.
CHECKFREE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CKFR)") else Response.Write("(NASDAQ: CKFR)") end if %> is up $2 9/16 to $20 5/8 on news that INTUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTU)") else Response.Write("(NASDAQ: INTU)") end if %> will take a significant equity stake in the company in exchange for part of Intuit's operations. Shares of Intuit also jumped, up $2 3/8 to $32 1/2.
PROLER INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PS)") else Response.Write("(NYSE: PS)") end if %> announced earnings and a little something extra this morning: They are being acquired by SCHNITZER STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCHN)") else Response.Write("(NASDAQ: SCHN)") end if %> for $7.50 a share. Proler has almost doubled on the day and is trading up $3 1/2 to $7 3/8.
FIRST FEDERAL BANCSHARES OF EAU CLAIRE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FFEC)") else Response.Write("(NASDAQ: FFEC)") end if %> will be taken out at $18.85 a share, at 133% of book value, by Mutual Savings Bank, Milwaukee. First Federal is trading a dollar below that price, at $17 7/8, but up $2 9/16 from Friday's close.
CENTERIOR ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CX)") else Response.Write("(NYSE: CX)") end if %> and OHIO EDISON CO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OEC)") else Response.Write("(NYSE: OEC)") end if %> have agreed to merge and form the nation's eleventh-largest investor-owned electric utility. Shares of Centerior are up 21% to $9 1/4. Ohio Edison is down slightly at $19 7/8.
EXCEL COMMUNICATIONS INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> is up $2 1/4 to $27, having announced Friday that it will now bill customers in 6-second increments.
MEMC ELECTRONIC MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WFR)") else Response.Write("(NYSE: WFR)") end if %> is up $1 3/8 to $21 3/4, rebounding a touch from last week's fall when the maker of epitaxial wafers pre-announced a weak third quarter.
DOWNS
Telecom software and equipment manufacturer GLENAYRE TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GEMS)") else Response.Write("(NASDAQ: GEMS)") end if %> was no gem today, as it got absolutely smashed for $13 1/8 to $20 1/8 after it reported that net income for the third quarter would be 40%-45% below year-ago levels.
Buffet-style restaurant concerns BUFFETS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BOCB)") else Response.Write("(NASDAQ: BOCB)") end if %> and HOMETOWN BUFFET INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HTBB)") else Response.Write("(NASDAQ: HTBB)") end if %>, which plan to merge later this year, both gave disappointing earnings guidance today, and were dropped $3 to $11 7/8 and $3 3/8 to $13 7/8, respectively.
ANADIGICS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ANAD)") else Response.Write("(NASDAQ: ANAD)") end if %>, which manufactures integrated circuits for radio and microwave transmission, announced late Friday that its net income for the third quarter would be "substantially" below second quarter results due to higher-than-expected costs for its products. Anadigics, which had previously been on Goldman Sachs's recommended list, has been cut to "outperform" by the firm and dropped $6 1/2 to $23 today.
Managed healthcare provider FOUNDATION HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FH)") else Response.Write("(NYSE: FH)") end if %> announced that it was in preliminary discussions concerning a "strategic combination with a third party." Investors aren't too thrilled because the combination ratio being discussed would result in a nominal value to shareholders -- below Friday's closing price of $36.125. Accordingly, the stock is down $1 7/8 to $34 1/4.
Under a July agreement, MARTIN MARIETTA MATERIALS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MLM)") else Response.Write("(NYSE: MLM)") end if %>, which manufactures aggregates used in infrastructure projects, today began the split-off of LOCKHEED MARTIN'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %> 81% stake in the company, and dropped $1 7/8 to $19 7/8. Lockheed shareholders will receive 4.72 Martin Marietta shares for each Lockheed stub.
IN FOCUS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INFS)") else Response.Write("(NASDAQ: INFS)") end if %>, a leader in the manufacture of flat-panel, liquid crystal computer displays, gave guidance that it is "unlikely" that the company will meet analyst estimates for the third quarter, citing insufficient supply of a key component for a new product as one of the reasons for the shortfall. The stock was down $1 1/4 to $14.
FOOL PORTFOLIO STOCKS
Dale Wettlaufer (MF Raleigh),
a Fool
Christopher McKay (MF Murdoch),
another Fool
Selena Maranjian (MF Selena)
another Fool