The Motley Fool, 8/22/97: The Lunchtime News

FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo

McAfee Hacked

Software developer MCAFEE ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCAF)") else Response.Write("(Nasdaq: MCAF)") end if %> slumped $4 to $55 1/4 after the firm confirmed that its products contain code "misappropriated" from SYMANTEC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYMC)") else Response.Write("(Nasdaq: SYMC)") end if %>. Only the day before, McAfee had issued a press release denying that it "used" any Symantec code. Today, Symantec issued a press release that confirmed that McAfee had Symantec's source code in its flagship VirusScan product. The revelation comes only weeks after McAfee admitted that there was some Symantec code from a product called CrashGuard in its own PC Medic product.

The news puts the damper on McAfee shares, which have been weak all month after the company hit an all time high of $78 1/2 in late July. The shares were whacked on August 15 when the company disclosed in a routine 10-Q filing that there was increasing competition in its core markets that could reduce average selling prices and profit margins. Although the revelation smacked of typical boilerplate issued in a federal filing regardless of the business reality, many investors have been concerned about arch-rival Symantec showing renewed vigor just as McAfee begins to enter the indirect retail channel via distributors after focusing on being a direct seller.

The question now becomes how much all of this affects McAfee's 1998 earnings estimates. Analysts are looking for $2.44 EPS in 1998 right now, up 43% from the $1.71 EPS that they are looking for this fiscal year. This puts the company at 22.7 times forward earnings, a discount to the growth rate. Investors are now concerned that not only will McAfee possibly miss those numbers due to increased competition, but it might have to cough up some cash to settle with Symantec, putting the balance sheet in jeopardy. Although getting in the middle of a complex legal battle is never a good idea for individual investors, keeping an eye on McAfee and looking at what trade magazines report on potential settlement terms could help investors understand the situation better and allow them to make an informed investment decision.

UPS

Casino and hotel facility operator BOYD GAMING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYD)") else Response.Write("(NYSE: BYD)") end if %> rolled $1 higher to $8 1/4 on the strength of a Deutsche Morgan Grenfell upgrade from "hold" to "buy."

Chip maker CYPRESS SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CY)") else Response.Write("(NYSE: CY)") end if %> raised its clock speed, climbing $7/8 to $16 3/8 after Morgan Stanley initiated coverage with a "strong buy."

CLEAR CHANNEL COMMUNICATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCU)") else Response.Write("(NYSE: CCU)") end if %> gained $2 15/16 to $62 3/4 on the strength of its announcement yesterday that it will join the vaunted S&P 500 Index. Investors in the diversified media concern hope the mandatory investment by index funds will boost the share price further.

Contract manufacturer SMART MODULAR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMOD)") else Response.Write("(Nasdaq: SMOD)") end if %> gained $6 5/16 to $56 on ringing up 3Q EPS of $0.57, blowing away the Street's expectations of $0.46.

Despite receiving a downgrade from Donaldson, Lufkin & Jenrette, global wireless communications firm IRIDIUM WORLD COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IRIDF)") else Response.Write("(Nasdaq: IRIDF)") end if %> climbed $1 3/8 to $37 3/4.

DOWNS

RETIREMENT CARE ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RCA)") else Response.Write("(NYSE: RCA)") end if %> was hit for a $1 5/8 loss to $10 after agreeing to accept fewer shares in its merger agreement with long-term care and sub-acute care provider SUN HEALTHCARE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHG)") else Response.Write("(NYSE: SHG)") end if %>. Under the old agreement, Retirement Care holders would have received 0.68265 Sun shares for each RCA share. That agreement has been changed to 0.52 shares of Sun for each Retirement care share.

Chip maker TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> lost $6 to $119 after Merrill Lynch lowered its rating on the company to "near-term neutral" from "accumulate." Merrill Lynch analyst Tom Kurlak also cut his rating on INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> from "near-term neutral" from "buy,' giving those shares a $3 1/2 haircut to $94 7/8.

SYSTEMSOFT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYSF)") else Response.Write("(Nasdaq: SYSF)") end if %> fell $3 7/16 to $8 3/4 after the utilities software company reported a 50% decline in Q2 EPS. The company also forecast weak results for the rest of the year.

Fuel systems manufacturer WALBRO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WALB)") else Response.Write("(Nasdaq: WALB)") end if %> skidded $2 1/2 to $20 1/2 after Prudential cut its rating on the company to "hold" from "buy."

CONFERENCE CALLS

HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(800) 633-8284 (code: 2857062) -- replay through 8/22

HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
(402) 220-3005 -- replay through 8/22

ROSS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
(402) 222-9936 -- replay through 8/26

ACE CASH EXPRESS INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:AACE)") else Response.Write("(Nasdaq:AACE)") end if %>
(800) 642-1687 (give last name and confirmation #566078) -- relay through 8/27

COMARCO INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMRO)") else Response.Write("(Nasdaq: CMRO)") end if %>
(800) 642-1687 (ID #565705) -- replay through 8/22 @ 5:00 pm EDT

THIS WEEK'S CONFERENCE CALL SYNOPSES

DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> Call
HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> Call

FOOL PORTFOLIO STOCKS

FOOL PORTFOLIO                 BORING PORTFOLIO

ATCT unch. at $4 9/16          ATLS dn $3/16 at $28 13/16
AOL dn $15/16 at $66 11/16     BGP up $3/8 at $24 1/8
CHV dn $1 1/16 at $77 11/16    CSL down $5/8 at $42 1/8
COMS dn $7/8 at $52 3/8        CSCO dn $1 11/16 at $42 1/8
DJT unch. at $11 1/8           GNT dn $3/8 at $44 5/16
GM up $1 1/8 at $64 7/16       ORCL dn $3/16 at $39 3/4
INVX dn $1 1/8 at $33 3/4      OXHP dn $1/4 at $76 1/2
IOM dn $5/16 at $22 5/16       PMSI dn $7/16 at $11 1/4
KLAC dn $1 11/16 at $71 3/16   TDW dn $3/4 at $50 1/8
LU dn $1 15/16 at $81 9/16
MMM dn $3/4 at $90 3/4
T dn $3/16 at $39 3/4

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Randy Befumo (TMF Templr), a Fool
Fool Plate Special

Dale Wettlaufer (TMF Ralegh), another Fool
Ups & Downs

Brian Bauer (TMF Hoops), and yet another Fool
Editing