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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
Lost in Space?
Today's popular press is rife with verisimilar reports about the status of a PanAmSat <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPOT)") else Response.Write("(Nasdaq: SPOT)") end if %> satellite called Galaxy IV, which is reported to have "spun out of control" last night, conjuring up images of a multi-million dollar communications device hurtling end over end into the void. The reality is a bit more mundane, but the results on the ground are the same -- and that is widespread service disruptions. PanAmSat, the only commercial satellite company providing global coverage, was down $1 to $56 1/2 this morning after navigational tools controlling its Galaxy IV satellite malfunctioned and the three-axis bird rotated away from its fixed position relative to the earth, resulting in signals bouncing into space rather than back down to earth where they belong. No doubt, a future edition of the Enquirer will report that aliens responded to some of the lost pager signals.
It is estimated that up to 45 million pagers have been affected by "the move," as well as many assorted TV and radio broadcasters and even gas stations that utilize the satellite system to confirm credit card transactions. PanAmSat is busy implementing a two-step plan to aid customers like Paging Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAGE)") else Response.Write("(Nasdaq: PAGE)") end if %>, PageMart Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMWI)") else Response.Write("(Nasdaq: PMWI)") end if %>, CBS television, and National Public Radio. The first step involves re-routing traffic to some neighboring birds until the problem with Galaxy IV can be remedied. If the company determines that Galaxy IV is lost in space, then the firm will move another one of its satellites into an orbit a couple of degrees away from Galaxy IV (which will take a couple weeks). The entire affair only serves to highlight the crucial nature of these satellite operators whose stage is earth, but where space is "behind the scenes."
Satellite companies pay to have their satellites put up in space and then rent the transponder capacity that broadcasts on multiple bandwidths and focuses on different regions of the world. This creates opportunities for a satellite company to focus on a particular set of wavelengths or a particular region of the world if there is some economic advantage (like low transponder capacity). However, it usually takes 18-24 months in order to generate those 50-80% cash flow margins that satellite companies enjoy. The firms have to come up with about $200 million in capital to build and launch a satellite, which is normally taken care of by third parties. This is in addition to performing the necessary testing once it is in orbit. Today's events may prompt a re-assessment of the satellite business by investors, depending on conclusions reached about the relative loyalty of PanAmSat's customers to their "product" within the decision matrix of necessity and choice.
McDonald's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %> rose $1 7/16 to $64 1/4 on reports that the fast food giant's CEO Jack Greenberg said he expects a "very strong'' second quarter, reflecting "strong improvement'' in U.S. sales.
Chrysler <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> sped ahead $1 7/8 to $53 7/16 after The Wall Street Journal's "Heard on the Street" column reported that shares of the nation's No. 3 automaker, at $52, have stalled about $10 below the $60 to $62 value range that many analysts estimate shareholders will receive as soon as September. Several brokerage firms, including Merrill Lynch and J.P. Morgan, are recommending the stock on a short-term basis. Merrill Lynch estimates that Chrysler should be worth $60 a share within 12 months, based on a P/E multiple of 14 times estimated 1999 EPS of $6.83 for the newly merged DaimlerChrysler.
Entertainment and media giant Walt Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> moved up $1 3/8 to $112 5/16 after announcing its fall TV lineup and that its ESPN SportsZone unit won the rights to produce the National Football League's website (NFL.com) with a $10 million bid, beating out SportsLine USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLN)") else Response.Write("(Nasdaq: SPLN)") end if %> and News Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> Fox Sports Online.
Investment bank Bear Stearns <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSC)") else Response.Write("(NYSE: BSC)") end if %> added $1 11/16 to $54 9/16 on reports that it is in talks to be acquired by Dutch bank ABN AMRO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAN)") else Response.Write("(NYSE: AAN)") end if %>. Reuters reported that a spokesman at ABN AMRO dismissed the reports as "nonsense."
Department store operator Kohl's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KSS)") else Response.Write("(NYSE: KSS)") end if %> gained $1 11/16 to $45 5/8 after reporting first quarter earnings of $0.17 a share, up from $0.10 in the year-earlier period.
Upscale retailer Nordstrom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOBE)") else Response.Write("(Nasdaq: NOBE)") end if %> charged up $1 5/16 to $69 3/16 after announcing a 2-for-1 stock split, with the additional shares to be distributed on June 30. The company also declared a pre-split $0.14 per share dividend payable on June 15.
Wireless communications products wholesaler and retailer CellStar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLST)") else Response.Write("(Nasdaq: CLST)") end if %> gained $1 1/8 to $30 7/8 after announcing a 2-for-1 stock split on or about June 23.
Nifty gadget retailer and catalog company The Sharper Image <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHRP)") else Response.Write("(Nasdaq: SHRP)") end if %> jumped $1 1/2 to $7 7/8 after announcing plans to re-launch its sharperimage.com website next month to further increase sales via the Internet. The company said sales from its website doubled in each of the past two years and are showing triple-digit growth this year.
Kmart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> rang up $7/8 to $19 1/4 after Merrill Lynch raised its long-term rating on the discount retailer to "buy" from "accumulate," while keeping its short-term "buy" rating. Merrill Lynch set a 12-month price target of $27, adding that a year from now Kmart will be perceived as more of a growth company than a turnaround story.
Mellon Bank Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %> lost $1 1/2 to $68 1/2 after the Bank of New York <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BK)") else Response.Write("(NYSE: BK)") end if %> formally withdrew its $24 billion bid for the Pittsburgh-based bank. The decision was made after Mellon executives refused to meet with their Bank of New York counterparts yesterday. Bank of New York said it would immediately resume its stock repurchase plan, which was suspended after the bid for Mellon was submitted. PaineWebber downgraded Mellon's shares to "attractive" from "buy."
Interactive entertainment software firm MicroProse Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MPRSD)") else Response.Write("(Nasdaq: MPRSD)") end if %> slid $1 1/16 to $5 15/16 after reporting a Q4 loss of $2.13 per share versus a profit of $0.18 per share a year ago. CEO Steve Race said he believes the company will return to profitability in fiscal 1999. However, the company's board has authorized management to explore "strategic alternatives," which may include a business combination with another firm or an outside investment.
Neurological medical device maker Cyberonics Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYBX)") else Response.Write("(Nasdaq: CYBX)") end if %> dropped $31/32 to $14 7/16 after its CEO said he expects "little, if any" sequential revenue growth in the fiscal fourth quarter since the expansion of its U.S. marketing and sales staff reached capacity during the third quarter. Moreover, increased sales and marketing investment will result in higher fiscal 1999 operating expenses than a year ago, he said.
Fabric wholesaler Hancock Fabrics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HKF)") else Response.Write("(NYSE: HKF)") end if %> was ripped $1 3/4 to $12 11/16 after reporting Q1 EPS of $0.10 versus $0.11 a year ago, missing the Street's estimate by $0.02. The company attributed the shortfall to a 2% decline in same-store sales during the period and an ineffective advertising campaign.
Bar code and labeling systems maker Paxar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PXR)") else Response.Write("(NYSE: PXR)") end if %> was zapped $1 1/16 to $11 5/8 after Wheat First Union downgraded the company to "hold" from "buy."
Number-one direct PC marketer Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> fell $2 21/32 to $91 15/16 after yesterday reporting Q1 EPS of $0.44 compared to $0.27 a year ago, which was $0.02 ahead of the First Call mean estimate. Net revenues increased 53% to $3.9 billion in the quarter, including a 35% rise in the Asia-Pacific region to $269 million. In an interview on CNBC this morning, CEO Michael Dell said he sees the company logging half of its annual revenues over the Internet in the next few years.
Internet sports information provider Sportsline USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLN)") else Response.Write("(Nasdaq: SPLN)") end if %> was cut $2 15/16 to $27 13/16 after the company and News Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> Fox Sports Online lost a bidding war for the rights to produce the National Football League's website to Disney's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> ESPN SportsZone.
Centigram Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGRM)") else Response.Write("(Nasdaq: CGRM)") end if %> slumped $13/16 to $12 5/8 after reporting a fiscal Q2 loss of $0.66 per share compared to a $0.90 per share loss (including a restructuring charge) a year ago. The Street had been expecting a $0.59 per share loss for the quarter.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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