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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
Crestar Eclipses SunTrust
Previously reluctant to use its equity to do big acquisitions, SunTrust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STI)") else Response.Write("(NYSE: STI)") end if %> today announced it will pony up and swap 0.96 of a share of its stock for each share of Crestar Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CF)") else Response.Write("(NYSE: CF)") end if %> in a deal valued at around $9.5 billion. The deal valued Crestar shares at $83.94 as of Friday's close; however, Crestar only traded up $8 1/2 to $72 1/2 this morning as SunTrust dropped $9 5/16 to $78 1/8 on the news.
SunTrust shareholders may have sold off the stock because the deal looks so rich. Indeed, at the agreed-upon deal price, Crestar is valued at 24 1/2 times the 1999 mean earnings estimate of $3.43 per share and at 27.7 times trailing earnings before goodwill amortization. However, SunTrust has never been cheap, due in part to its stake in Coca-Cola Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> worth in the neighborhood of $4 billion. Before backing out the value of the Coke stake and the associated dividends, SunTrust trades at 25.9 times earnings before amortization, a nice 25% premium to its peer group. Taking the Coke stock and dividends out of the earnings stream, it trades at 22.7 times trailing earnings and in the neighborhood of 23 times 1999 earnings estimates before goodwill amortization. With synergies that should come to Crestar through the addition of SunTrust's trust and income operations and back office operations, the companies believe the deal will be accretive to SunTrust's 1999 EPS.
Speculation has swirled around Crestar for more than a year, especially in the face of extensive acquisitions of Virginia-based banks by the likes of North Carolina-based Wachovia Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WB)") else Response.Write("(NYSE: WB)") end if %>. This deal brings SunTrust north for the first time, as it has really depended on intrinsic growth in its home regions of Georgia/Florida rather than on acquisitions. Crestar has over 560 banking branches throughout Virginia, Washington, D.C., and Maryland. If the companies can achieve synergies to the extent that return on assets (ROA) at Crestar reaches over 1.6%, then SunTrust did not overpay. ROA of 1.6% is rare but not unattainable in the consumer banking world. With a good mix of noninterest-bearing deposits to interest-bearing deposits and one of the best intrinsic rates of growth in core deposits in the banking sector, Crestar is attractive due to its geography. SunTrust should be at home in Crestar's markets, as similar as they are to its core franchise. SunTrust shareholders can't be blamed, though, for the sell-off. The price on the deal makes it a "show-me, don't tell" sort of acquisition, especially as this isn't SunTrust's normal game. Unlike other large superregional banks, it isn't practiced at this.
Canadian spirits and entertainment company Seagram Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VO)") else Response.Write("(NYSE: VO)") end if %> picked up $1 3/8 to $41 3/16 after agreeing to sell its Tropicana line of fruit juices to PepsiCo. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> for $3.3 billion in cash. Seagram had planned to sell the business in an initial public offering (IPO), which would have been one the largest IPOs in U.S. market history.
Drug and consumer health products maker Warner-Lambert Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> climbed $5 5/16 to $84 7/8 after reporting fiscal Q2 EPS of $0.40 versus $0.28 a year ago, beating the First Call mean estimate by $0.03. Worldwide prescription dug sales surged 71% in the period to $1.41 billion, led by strong sales of the company's Lipitor cholesterol drug and its Rezulin diabetes treatment.
Telecommunications equipment maker Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> rang up $4 7/16 to $99 5/16 after agreeing to acquire Australian telecom equipment provider JNA Telecommunications for $70 million in cash, reportedly winning a bidding war against router maker Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>.
Process and electrical control products maker General Signal Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GSX)") else Response.Write("(NYSE: GSX)") end if %> advanced $4 3/8 to $42 after auto parts maker SPX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SPW)") else Response.Write("(NYSE: SPW)") end if %> agreed to acquire the company for $45 per share in cash and stock and $335 million in assumed debt. The deal will be accretive to fiscal 1999 earnings, will increase cash flow "significantly," and will yield $55 million to $60 million in annual cost savings starting in the first year, according to SPX. SPX fell $3 3/8 to $61 1/8.
Internet content provider CNET Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNWK)") else Response.Write("(Nasdaq: CNWK)") end if %> gained $5 3/4 to $59 7/8 after appointing four new executives for its Snap! joint venture with General Electric's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> NBC unit. NBC also said it will launch a six-week "brand-awareness" promotional campaign for Snap! that will begin airing next week.
Semiconductor maker Advanced Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> rose $5/8 to $17 3/16 in anticipation of its unveiling of an agreement with Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> later today to jointly develop a line of copper-based chips.
Discount broker Charles Schwab Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCH)") else Response.Write("(NYSE: SCH)") end if %> rose another $3 1/8 to $44 3/8 after gaining more than 12% Friday on merger rumors, the majority of which centered on possible suitor Credit Suisse First Boston.
Canadian aluminum auto parts maker Turbodyne Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRBDF)") else Response.Write("(Nasdaq: TRBDF)") end if %> revved $1 1/4 higher to $13 3/16 after saying it is in early stage talks with "several major industrial concerns" regarding a possible strategic alliance, which may include the acquisition of a minority stake in the company.
Pulp and lumber products company Louisiana-Pacific Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LPX)") else Response.Write("(NYSE: LPX)") end if %> added $3/4 to $18 9/16 after J.P. Morgan upgraded the firm to "buy" from "market performer" and raised its fiscal 1998 earnings estimate to $0.27 per share from a loss of $0.03 per share.
Pharmaceutical products maker Forest Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: FRX)") else Response.Write("(AMEX: FRX)") end if %> tacked on $2 9/16 to $40 1/2 after the Food and Drug Administration approved the firm's Celexa anti-depressant drug, which is a collaboration with Warner-Lambert's Parke-Davis division.
Enterprise reporting software firm Actuate Software Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACTU)") else Response.Write("(Nasdaq: ACTU)") end if %> added another $3 1/16 to $21 13/16 after rising 70% Friday in its first day of trading following an initial public offering priced at $11 per share.
Online discount broker Ameritrade Holding Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMTD)") else Response.Write("(Nasdaq: AMTD)") end if %> traded $2 5/16 higher to $36 9/16 after announcing a two-for-one stock split payable on or about Aug. 17.
Network security detection software maker ISS Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISSX)") else Response.Write("(Nasdaq: ISSX)") end if %> gained $2 9/16 to $47 1/16 after signing a strategic partnership with fellow network security firm Check Point Software Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHKPF)") else Response.Write("(Nasdaq: CHKPF)") end if %>. Under the deal, Check Point will act as an OEM for ISS' RealSecure software and will work on other co-development projects with ISS. Check Point moved up $1 1/8 to $26 7/8.
McDonald's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %> fell $3 7/8 to $69 3/8 after announcing second quarter earnings of $0.66 (before charges), up from $0.61 a year ago and in line with analysts' expectations. The world's largest fast food chain said "it is unlikely we will sustain this level of performance" in the second half of the year due to "tougher comparisons."
General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> skidded this morning, losing $2 1/4 to $67 5/8 as its labor troubles spread to Spring Hill, Tenn., where workers at its Saturn plant voted to authorize a strike by a more than 95% margin. If the workers do walk, it will be the first strike in Saturn history.
Internet broadcaster of streaming media programming Broadcast.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BCST)") else Response.Write("(Nasdaq: BCST)") end if %>, formerly AudioNet, gave back $3 1/4 to $59 1/2 after last Friday shooting up as high as $74 last Friday from an initial public offering price of $18.
Integrated circuit maker Analog Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADI)") else Response.Write("(NYSE: ADI)") end if %> dropped $2 11/16 to $24 1/4 after announcing that fiscal Q3 revenues could be about 10% below the $333 million posted for the previous quarter due to "generally poor business conditions that continue throughout the semiconductor industry." The company added that earnings likely will be down by a larger percentage than revenues.
Schlumberger Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> slipped $1 9/16 to $65 5/8 after the oilfield services company reported Q2 EPS of $0.69 compared with $0.60 in the year-earlier period and in line with analysts' estimates. The company said it will adjust operations as "the uncertainty surrounding the demand for oil will keep our customers cautious about upstream spending."
Digital signal processing and electronics company Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> lost $1 15/16 to $59 1/4 after Salomon Smith Barney cut its rating to "outperform" from "buy" with a 12-month price target of $70 per share.
Oil and gas services company Smith International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SII)") else Response.Write("(NYSE: SII)") end if %> shed $1 3/16 to $31 1/4 after reporting Q2 EPS of $0.62 (excluding charges) compared with $0.59 (restated) last year and short of the analysts' mean estimate of $0.64.
Apache Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APA)") else Response.Write("(NYSE: APA)") end if %> was cut $1 3/16 to $28 1/4 after BT Alex. Brown lowered its rating on the oil and gas exploration and production company to "market perform" from "strong buy."
Amplicon Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMPI)") else Response.Write("(Nasdaq: AMPI)") end if %>, which leases and sells computer-related and telecommunications equipment, sank $1 15/16 to $16 3/8 after announcing it expects Q4 earnings to be about 18% to 20% above the year-ago period, but revenues will be down roughly 15%. The revenue shortfall resulted from lower equipment sales and the loss of some expected new business.
Earnings Movers
American Health Properties Psychiatric Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AHEPZ)") else Response.Write("(Nasdaq: AHEPZ)") end if %> down $4 1/2 to $10; Q2 EPS: $0.68 vs. $0.68 last year; Estimate: $0.64 (one analyst)
Farr Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FARC)") else Response.Write("(Nasdaq: FARC)") end if %> down $2 to $11; Q2 EPS: $0.22 vs. $0.22 last year; Estimate: $0.24 (one analyst)
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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
Editing |