DJIA: 8643.12 +26.41 (+0.31%) S&P 500: 1066.57 +2.47 (+0.23%) Nasdaq: 1757.82 +9.31 (+0.53%) Value Line ndx 953.94 +3.54 (+0.37%) 30-Year Bond 102 19/32 +9/32 5.94% Yield
Lunchtime News | |
Related Items | |
|
FOOL PLATE SPECIAL
An Investment Opinion by Dale Wettlaufer
Garbage Care Firms Merge
Waste Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %> cleaned up this morning, gaining $4 1/4 to $29 7/16 after agreeing to merge with USA Waste Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UW)") else Response.Write("(NYSE: UW)") end if %> in a deal valuing Waste Management's equity in excess of $13 billion. The combined company would be the nation's largest solid waste management concern, with approximately 20% of the market. Not only will the company's market share advantage allow cost savings, but in certain markets where the company's "share of garbage" is high, it might achieve price increases above and beyond the Consumer Price Inflation index.
Putting price increases together with the $800 million in cost savings the companies envision, the new Waste Management Inc. projects operating earnings growth at "a rate in excess of 20 percent for the next several years." That popped shares of USA Waste, technically the acquirer in the transaction, up $3 11/16 to $42 13/16. Operating under the assumptions the companies have laid out, EPS of $2.90 to $3.05 for 1999 and $3.55 to $3.70 for 2000 are projected. For 1999, that works out to net income of $1.681 billion, pretty heady given a current combined owners' equity of $6.68 billion. Assuming average owners' equity grows by 10% from now into the 1999 fiscal year and then another 10% the following year, the projected return on owners' equity works out to be 22.9% in 1999 and 25% in 2000.
This is the waste management industry, after all, and not pharmaceuticals. Those are super-normal returns on owners' equity. How does a heavy industry with little intellectual value added get to such a number? Leverage is what gets you there, as we can see by looking at after-tax operating profits available for all capital (equity plus debt). For 1999, projected after-tax operating profit to total capital looks to be between 11.1% and 11.7%. Projected return on total capital for 1999 climbs into the 13.5% range. These aren't really pie-in-the-sky figures, as the returns just clear the cost of capital employed in the business. Seeing as how Waste Management's numbers will be restated and how the company has floundered, this would be a big turnaround for that company. USA Waste has been a successful acquirer in the industry, and CEO John Drury will be at the helm at the new Waste Management. With a credible plan drawn out for shareholders this morning, both companies' stocks have benefited initially from the merger plan. Generating shareholder return going forward, given the slim return on total capital above and beyond the cost of that capital, will be more daunting.
Retailer Claire's Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLE)") else Response.Write("(NYSE: CLE)") end if %> rang up $1 9/16 to $22 1/2 after announcing it will acquire specialty teen apparel chain Lux Corp. for about $43 million in stock. The company said it plans to rapidly expand Lux's Mr. Rags chain by opening up to 50 stores in calendar 1998.
Frozen yogurt retailer TCBY Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBY)") else Response.Write("(NYSE: TBY)") end if %> added $7/16 to $9 1/16 after reporting fiscal Q1 EPS of $0.03 versus $0.01 a year ago. The results beat the Zacks mean estimate for the quarter by a penny.
Healthcare products company Q-Med Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QEKG)") else Response.Write("(Nasdaq: QEKG)") end if %> shot up $3/4 to $6 1/2 after the company agreed to terminate its strategic alliance with SmithKline Beecham <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBH)") else Response.Write("(NYSE: SBH)") end if %>. Q-Med will retain all future revenue from managed care contracts produced by the alliance and SmithKline is not entitled to reimbursement for expenses incurred under the alliance.
Cereal bar and fruit snack maker Grist Mill Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRST)") else Response.Write("(Nasdaq: GRST)") end if %> ground out a $2 1/16 gain to $14 5/16 after agreeing to be acquired by International Home Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IHF)") else Response.Write("(NYSE: IHF)") end if %> for about $105 million in cash, or $14.50 per share. The price represents a 18% premium to yesterday's $12 1/4 closing price for Grist Mill shares.
Genzyme Tissue Repair <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZL)") else Response.Write("(Nasdaq: GENZL)") end if %>, a separately traded division of biological products company Genzyme Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZL)") else Response.Write("(Nasdaq: GENZL)") end if %>, gained $15/32 to $8 21/32 after announcing that a group of orthopedic surgeons said 86% of patients treated with the firm's product to repair damaged knee cartilage showed improvement two years after treatment.
Materials handling systems provider SI Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SISI)") else Response.Write("(Nasdaq: SISI)") end if %> climbed $9/16 to $6 1/2 after reporting fiscal Q2 EPS of $0.08, doubling the $0.04 earned a year ago.
Hearing improvement technologies company Symphonix Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMPX)") else Response.Write("(Nasdaq: SMPX)") end if %> was lifted $1 3/8 to $16 1/4 after its Vibrant semi-implantable hearing device was approved for sale in the 15 European Union member countries.
Specialty imaging products maker Nashua Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSH)") else Response.Write("(NYSE: NSH)") end if %> picked up $1 1/8 to $14 1/8 on reporting a Q4 operating loss of $0.19 per share compared to earnings of $0.08 per share a year ago due to lower demand for its toner and coated paper products. The company also said it will sell most of its photofinishing business to an unspecified privately owned U.S. firm for $52.5 million.
Seagate Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> gained $ 1 5/8 to $24 1/8 after three of its data storage management products received Editor's Choice Awards from PC Magazine.
Terex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEX)") else Response.Write("(NYSE: TEX)") end if %> increased $1 3/4 to $24 3/8 after Standard & Poor's raised the credit rating of the maker of earth movers and telescopic mobile cranes to "single B plus" from "single B minus" and took the company off of CreditWatch. The ratings agency said the upgrade reflects a better business position and an improved, though still aggressive, financial profile.
Seismic acquisition technology firm Input/Output Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IO)") else Response.Write("(NYSE: IO)") end if %> rumbled $1 3/16 higher to $23 7/16 after reporting fiscal Q3 EPS of $0.34 versus $0.14 a year ago, which was ahead of the First Call mean estimate of $0.32.
Price Communications Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PR)") else Response.Write("(AMEX: PR)") end if %> rose $7/8 to $11 7/8 after the communications company announced a five-for-four stock split yesterday.
PC maker Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> added $1 31/32 to $26 1/32 after announcing an agreement with software juggernaut Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> to combine their Java language technologies for use on Apple's Macintosh computers. Also, computer retailer CompUSA Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> announced that it will launch Apple "store within a store" environments at its Superstores this weekend.
Arts and crafts retailer Michaels Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIKE)") else Response.Write("(Nasdaq: MIKE)") end if %> advanced $1 3/4 to $38 1/2 after reporting Q4 EPS of $0.79 compared to $0.35 a year ago, which topped the First Call mean estimate of $0.73.
Computer technology school Computer Learning Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLCX)") else Response.Write("(Nasdaq: CLCX)") end if %> continued its downward slide, losing $8 7/8 to $20 3/4 in the wake of news yesterday that the Illinois Attorney General is suing the company for fraud stemming from the way it recruited potential students to enroll in courses at one of its campuses in the state.
Consolidated Cigar Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIG)") else Response.Write("(NYSE: CIG)") end if %> was snuffed out for an additional $2 1/4 to $18 3/4 after Morgan Stanley downgraded the cigar maker to "neutral" from "strong buy." The company lost $3 3/4 yesterday following its announcement that it expects Q1 earnings to show little or no growth compared to the year-earlier period and fall short of analysts' estimates. Meanwhile Swisher International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWR)") else Response.Write("(NYSE: SWR)") end if %> also reported that Q1 earnings would fall below expectations, burning the shares for $1 5/8 to $13 1/8. General Cigar Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MPP)") else Response.Write("(NYSE: MPP)") end if %> dropped $1 9/16 to $15 3/4 as well.
Interactive entertainment software developer THQ Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: THQI)") else Response.Write("(Nasdaq: THQI)") end if %> tumbled $6 7/16 to $26 after announcing late yesterday that it will not renew its licensing agreement with WCW World Championship Wrestling.
Communication systems equipment supplier Andrew Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANDW)") else Response.Write("(Nasdaq: ANDW)") end if %> skidded $2 29/32 to $21 27/32 after announcing after the bell yesterday that it anticipates second quarter earnings to fall short of analysts' expectations due to slower revenue in January and February. If March sales continue apace, sales and earnings for the quarter could be about 10% to 15% lower than the prior-year sales of $202 million and earnings of $0.28 per share.
BetzDearborn Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTL)") else Response.Write("(NYSE: BTL)") end if %> lost $1 5/8 to $58 1/8 after Standard & Poor's assigned the water treatment and industrial process chemicals provider a corporate credit rating of triple-`B' with a positive outlook. J.P. Morgan cut its rating on the company to "long-term buy" from "buy." BetzDearborn also has announced plans to issue $400 million of securities that may include debt securities, common stock, preferred stock, and warrants.
Mortgage insurance provider MGIC Investment Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTG)") else Response.Write("(NYSE: MTG)") end if %> dropped $2 13/16 to $68 3/8 after Morgan Stanley lowered its rating on the company to "neutral" from "outperform."
International telecommunications concern Telegroup Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGRP)") else Response.Write("(Nasdaq: TGRP)") end if %> was disconnected for $1 5/16 to $16 1/4 after announcing late yesterday a fourth quarter loss of $0.35 per share before charges compared with a loss of $0.08 in Q4 1996. Gross profit for the quarter equaled 17.7% of revenues versus 24% for the year-earlier period. The company said this was mainly due to high levels of wholesale traffic, increased competition in certain markets, and the compressed fourth quarter network rollout schedule.
PSW Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSWT)") else Response.Write("(Nasdaq: PSWT)") end if %>, which provides software services to the R&D organizations of technology companies, was knocked down $1 to $7 after announcing late yesterday that its first quarter revenue and earnings will fall below expectations due to an anticipated $645,000 project milestone payment that the company will not receive.
Information technology staffing services supplier Syntel Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYNT)") else Response.Write("(Nasdaq: SYNT)") end if %> fell $4 3/4 to $34 after Prudential Securities cut its rating on the company to "hold" from "buy."
Samsonite Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAMC)") else Response.Write("(Nasdaq: SAMC)") end if %> slipped $1 1/16 to $35 15/16 after Salomon Smith Barney lowered its rating on the luggage maker to "outperform" from "buy."
Nikko Research Center Ltd. downgraded Toyota Motor Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TOYOY)") else Response.Write("(Nasdaq: TOYOY)") end if %> to a "2-'' rating from its previous "1,'' or basically to "underperform" from "outperform," sending the Japanese auto maker down $1 7/8 to $52 1/16.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
Click here for continually updated Portfolio Numbers.
WE DELIVER - Get The Lunchtime News delivered
to your e-mailbox every afternoon!
ANOTHER FOOLISH THING
See something moving a stock that we didn't cover?
E-mail the Fool News Team
and we will start working on the story.
Unfortunately, we cannot answer every e-mail
or respond to individual questions.
Dale Wettlaufer (TMF Ralegh), Fool
Alex Schay (TMF Nexus6), Fool
Yi-Hsin Chang (TMF Puck), Fool
Brian Graney (TMF Panic), Fool
Contributing Writers
Brian Bauer (TMF Hoops), Fool
Editor