DJIA 9136.63 +3.60 (+0.04%) S&P 500 1218.69 +2.55 (+0.21%) Nasdaq 2313.38 +2.59 (+0.11%) Russell 2000 398.98 -4.15 (-1.03%) 30-Year Bond 98 31/32 -7/32 5.32 Yield
FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump
Lycos Free Fall Continues
Shares of Internet portal and soon-to-be Home Shopping Network-owner Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> continued falling through the floor today, as the stock traded at $83, down $11 1/4 or 12%. This drop comes on top of a 26% plunge yesterday. Investors are showing their continued disappointment with the three-way merger between Lycos, USA Network's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USAI)") else Response.Write("(Nasdaq: USAI)") end if %> Home Shopping Network, and Ticketmaster Online-Citysearch <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMCS)") else Response.Write("(Nasdaq: TMCS)") end if %> that was announced yesterday.
A couple of factors appear to be hitting Lycos. Investors were hoping that Lycos would sell a stake in and partner up with a larger company at a significant premium to the market. The company had announced it was talking to potential alliance partners and investors assumed the best. Such enthusiasm was spurred by the roughly 90% premium @Home <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATHM)") else Response.Write("(Nasdaq: ATHM)") end if %> agreed to pay for portal site Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> in late January. As it turns out, Lycos was not taken over for a premium. It's hard to determine the fair value of the new entity, but it is certainly lower than the level at which Lycos was previously trading. Despite these two horrible days in the market, Lycos shares are still up around 50% since January 1.
The biggest concern among investors is finding the growth in the new company. During 1998's Q3, its last reported period, Lycos saw its revenue grow 166% to $25 million, a $100 million or so annual run rate. Investors extrapolated that growth rate far in the future and paid a high multiple for it. The new combined company will have total revenues in the $1.5 billion range, most of which is from the Home Shopping Network. Revenues for the enterprises USA is contributing to the network increased a modest 15% in 1998's Q4. Assuming the company derives 90% of its revenues from the USA operations and the current growth rates continue, the new USA/Lycos Interactive Networks will have revenue growth in the 30%-35% range. Investors aren't going to be inclined to pay 30x revenue multiples for this much slower growth.
While the balloon has (at least temporarily) popped for Lycos, don't necessarily count it out for the long haul. The company over the past year has leapfrogged from a has-been into the second biggest portal site on the Internet under the leadership of CEO Bob Davis. In addition, Barry Diller and his crew over at USA Networks have proven to be fairly adept, operating cable's most popular network. We'll have to wait and see what twists and turns this new entity introduces into the broadcast/e-commerce world.
Life sciences company Monsanto Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> gained $1 7/8 to $47 on reports that its arthritis-pain drug Celebrex is selling rapidly, generating prescriptions in its third week on the market that are more than six times those of the fast-selling cholesterol drug Lipitor at a comparable stage. The Wall Street Journal reported that Celebrex is the second-fastest selling new drug in recent years, behind Pfizer's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %> popular impotence drug Viagra.
Call center automation systems designer InterVoice <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTV)") else Response.Write("(Nasdaq: INTV)") end if %> gained $1 9/16 to $13 3/4 after receiving a $5.8 million order for its interactive voice response systems from a new customer, which it categorized as a "major provider of local and long distance telecommunication services." About half of the order is expected to ship during the current quarter, the company said. Piper Jaffray raised the firm's rating to "strong buy" from "buy" late yesterday.
Musculoskeletal and orthopedic medical products maker Biomet Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMET)") else Response.Write("(Nasdaq: BMET)") end if %> picked up $1 7/8 to $34 3/16 following upgrades from Bear Stearns and BancBoston Robertson Stephens this morning.
Outsourced pharmaceutical manufacturing services firm ChiRex Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRX)") else Response.Write("(Nasdaq: CHRX)") end if %> advanced $1 3/8 to $21 1/4 after reporting Q4 EPS of $0.34 (before charges) vs. $0.03 last year, beating the Zacks mean estimate of $0.29. Revenues increased 38% in the period from a year ago to $35.7 million.
Transportation logistics management company Ryder System <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: R)") else Response.Write("(NYSE: R)") end if %> motored ahead $1 9/16 to $25 7/8 after receiving an upgrade to "strong buy" from "neutral" from Morgan Stanley Dean Witter. The brokerage's price target is $35 per share.
Battered funeral home and cemetery operator Service Corp. International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRV)") else Response.Write("(NYSE: SRV)") end if %> showed some signs of life and rose $9/16 to $16 3/4 this morning after Merrill Lynch raised its long-term rating to "buy" from "accumulate."
Discount shoe retailer Payless ShoeSource <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PSS)") else Response.Write("(NYSE: PSS)") end if %> skipped $2 3/4 higher to $52 after saying stronger than expected sales in December and January will result in Q4 EPS between $0.35 and $0.40, topping the First Call mean estimate of $0.28.
Telecommunications embedded processors maker RadiSys Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RSYS)") else Response.Write("(Nasdaq: RSYS)") end if %> moved up $3 1/8 to $31 7/8 after agreeing to buy IBM's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> communications coprocessor adapter hardware and software development unit for about $22.8 million in cash.
Combination casino-hotel operator Mirage Resorts <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MIR)") else Response.Write("(NYSE: MIR)") end if %> rolled $7/8 higher to $15 3/16 after Donaldson, Lufkin & Jenrette raised its rating to "top pick" from "market perform."
Investment and insurance holding company Rushmore Financial Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RFGI)") else Response.Write("(Nasdaq: RFGI)") end if %> rocked $3 11/16 higher to $5 15/16 after announcing it will offer real-time market information and a fast order entry system for day traders through its RushTrade.com division. The company said all trades will be cleared by online broker Southwest Securities <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWS)") else Response.Write("(NYSE: SWS)") end if %>.
Surge suppressors and uninterruptible power supplies (UPS) maker American Power Conversion <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APCC)") else Response.Write("(Nasdaq: APCC)") end if %> surged $1 5/8 to $41 7/16 after its board approved a two-for-one stock split.
Earnings Movers
General Instrument Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GIC)") else Response.Write("(NYSE: GIC)") end if %> up $1 3/4 to $33 3/8; Q4 EPS: $0.26 vs. $0.10 last year (excluding charges); estimate: $0.23
Shared Medical Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMS)") else Response.Write("(NYSE: SMS)") end if %> up $5 3/16 to $48 3/16; Q4 EPS: $0.69 vs. $0.67 last year; estimate: $0.67
Snyder Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNC)") else Response.Write("(NYSE: SNC)") end if %> up $1 5/8 to $35 1/2; Q4 EPS: $0.30 (excluding charges) vs. $0.07 last year; estimate: $0.28
SOFTWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWRX)") else Response.Write("(Nasdaq: SWRX)") end if %> up $1 3/32 to $8 15/16; Q4 EPS: $0.20 vs. $0.07 last year; estimate: $0.16
Direct retailer Shop At Home <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SATH)") else Response.Write("(Nasdaq: SATH)") end if %> lost $3 1/4 to $16 3/4 following its announcement of the Internet strategy it teased investors with late last month: a site selling collectibles in tandem with Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> and iXL Inc. Shop At Home also announced a move to the Nasdaq National Market System from the exchange's SmallCap Market, effective today.
TV station owner Sinclair Broadcast Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBGI)") else Response.Write("(Nasdaq: SBGI)") end if %> sank $2 1/2 to $14 1/4 after the company said CEO-designate Barry Baker is leaving the company to pursue other opportunities. Q4 losses at Sinclair were $0.14 per share, down from last year's penny oer share loss and missing First Call's anticipated $0.06 profit.
All three heads of the multimedia hydra now known as USA/Lycos Interactive Networks lost ground today. Ticketmaster Online-Citysearch <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMCS)") else Response.Write("(Nasdaq: TMCS)") end if %> moved back $6 1/2 to $35 3/4, while Web portal Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> stumbled $11 1/4 to $83 as both stocks extended yesterday's losses. Cable TV networks operator USA Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USAI)") else Response.Write("(Nasdaq: USAI)") end if %>, which picked up $3 11/16 yesterday, forfeited $2 3/16 to $39 7/16 this morning.
E-business software company Segue Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEGU)") else Response.Write("(Nasdaq: SEGU)") end if %> moved back $4 1/4 to $11 11/16 on last night's news of Q4 losses of $0.19 per share, well off Wall Street's $0.05 profit estimate. The company this morning announced a deal to provide Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> with server software tools.
Maryland-based biotechnology firm EntreMed <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENMD)") else Response.Write("(Nasdaq: ENMD)") end if %> was dumped for $11 13/16 to $12 11/16 after drug and personal care products maker Bristol-Myers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %> late yesterday announced it will relinquish responsibility for all future development of EntreMed's angiostatin protein as a potential cancer therapy. For more on the news, head back to today's Breakfast With the Fool.
Nutritional science firm Natural Alternatives International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAII)") else Response.Write("(Nasdaq: NAII)") end if %> flaked off $1 1/2 to $5 1/2 after CEO Mark Le Doux said second-half EPS may fall below year-ago levels as capital expenditures and administrative costs rise in accordance with growth efforts. Fiscal Q2 EPS was $0.06, well below the year-ago $0.24 mark and the $0.28 projection one analyst gave First Call.
Propane grill cylinder exchange company Blue Rhino Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RINO)") else Response.Write("(Nasdaq: RINO)") end if %> was gored for $2 7/16 to $12 1/16 after saying last night it will adjust Q1 earnings down to a loss of $0.01 per share from the previously reported $0.05 per share after figuring in charges related to the acquisition of certain assets from Bison Valve.
Outerwear maker Columbia Sportswear <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COLM)") else Response.Write("(Nasdaq: COLM)") end if %> cooled $2 7/8 to $12 7/8 after it said warmer winter weather is leading it to expect domestic fall sales in 1999 to be flat with 1998 levels. The company reported Q4 EPS of $0.28, up from $0.24 (pro forma) last year and a penny above market projections.
Both halves of a big-dollar insurance merger fell this morning on downbeat earnings news. Unum Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNM)") else Response.Write("(NYSE: UNM)") end if %> dropped $6 5/8 to $49 3/16 after reporting Q4 EPS of $0.71, ahead of last year's $0.64 tally but $0.02 below estimates. Provident Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PVT)") else Response.Write("(NYSE: PVT)") end if %>, meanwhile, slumped $4 1/4 to $34 7/8 after Q4 EPS came in at $0.60 up from $0.52 last year but below the estimate of $0.62
Earnings Movers
MedPartners <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDM)") else Response.Write("(NYSE: MDM)") end if %> down $7/16 to $5 7/8; Q4 EPS $0.06 vs. loss of $0.01 last year; estimate: profit of $0.07
Network Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSOL)") else Response.Write("(Nasdaq: NSOL)") end if %> down $6 5/8 to $141 3/8; Q4 EPS: $0.22 vs. $0.11 last year; estimate: $0.20
Omega Protein <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OME)") else Response.Write("(NYSE: OME)") end if %> down $1 9/16 to $7 5/16; fiscal Q1 EPS $0.18 vs. $0.27 last year; estimate: $0.20
RehabCare Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHB)") else Response.Write("(NYSE: RHB)") end if %> down $1 3/16 to $18 1/4; Q4 EPS $0.46 (before gain) vs. $0.38 last year; estimate: $0.43
Verio Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRIO)") else Response.Write("(Nasdaq: VRIO)") end if %> down $2 to $28 3/8; Q4 EPS loss of $1.02 vs. loss of $1.03 last year; estimate: loss of $1.08
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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |