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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
Computer Learning Gets Detention
Computer Learning Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLCX)") else Response.Write("(Nasdaq: CLCX)") end if %> got crushed this morning, falling $7 7/8 to $ 5 1/2 after the operator of computer and information technology schools announced that it expects to report Q2 EPS of approximately $0.04 to $0.05 per diluted share, versus expectations for $0.16, and compared with net income of $0.12 per diluted share in last year's second quarter. The company's operating difficulites stem from larger-than-expected operating losses at three new Learning Centers open for less than a year, a 16% decrease in Q2 same-center enrollment for the 16 other Learning Centers (to 2,539 from 3,037 in last year's second quarter), as well as an approximate $359,000 after-tax loss from the company's Advantec Institute.
Historically, one of the great things about for-profit education in general has been the fact that once students are recruited by a public post-secondary institution, they represent a recurring, predictable revenue flow. Most companies in the group can already discern roughly 70% of their year-end revenues by the halfway point in their fiscal year. This, as well as the tremendous potential operating leverage the segment offers (due to the number of students in a classroom being spread out over largely fixed costs) has attracted investors for a number of years and contributed to the build-up in valuation multiples for the segment.
Much of Computer Learning's problems have been attributed to the numerous damaging lawsuits that have emerged over the last year, precipitated in part by the Attorney General of the State of Illinois, who alleged that Computer Learning violated the state's Private Business and Vocational School Act at its Schaumburg, Illinois, school. Indeed, the company reported expenses of approximately $303,000 related to the settlement with the Attorney General, $514,000 in legal expenses associated with the settlement, and $202,000 in lease termination costs.
With one of the primary factors influencing an education provider's business model being favorable word-of-mouth, legal action and the resulting negative publicity can be severely damaging -- sales and marketing expenditures begin to bulge seemingly indefinitely as a company attempts to repair the damage done to its reputation. As well, gross margins fall due to a decline in capacity utilization as students delay or postpone their enrollment. So let it be with Computer Learning Center. However, the company's share price has been cut in half, almost like it's facing going concern issues! With the broader segment (including APOL, DV, ESI, STRA, SLVN) trading in the range of 21-38 times cash flow to enterprise value, Computer Learning's meager 9 times (including an estimate of the yet to be released Q2 with operating margins of 11%) cash flow to enterprise value represents more than a 50% discount to the low-end of the range. Investors that feel the demand for IT education isn't drying up should take a closer look.
The wedding is on! Ciena <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> got a boost this morning from voice and data transport systems maker Tellabs' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> announcement that it will proceed with its proposed acquisition of the telecommunications network capacity company -- after the two prenuptially agreed to lower the price of the deal. Instead of a one-for-one stock swap, Ciena shareholders will receive 0.8 of a Tellabs share for each Ciena share. Ciena celebrated with a $4 gain to $34 13/16. Tellabs dropped $8 13/16 to $49.
The Big Three automakers rebounded this morning from yesterday's losses. Chrysler <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> revved up $2 3/8 to $49 5/8 after Merrill Lynch raised its rating on the automaker to "intermediate buy" from "intermediate accumulate." Paine Webber upgraded General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> and Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> to "attractive" from "neutral," driving GM up $9/16 to $61 5/16 and Ford up $3/8 to $46 7/8.
AccuStaff Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASI)") else Response.Write("(NYSE: ASI)") end if %> lunged forward $2 to $18 after announcing it will sell its commercial staffing business, Strategix, to Netherlands-based international staffing firm Randstad Holding for $850 million in cash. AccuStaff said it won't be spinning off the business as previously planned. It also plans to change its name to Modis Professional Services Inc.
Enterprise software company J.D. Edwards & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JDEC)") else Response.Write("(Nasdaq: JDEC)") end if %> added $1 1/16 to $37 after reporting fiscal third quarter earnings of $0.16 a share, up from $0.07 in the year-earlier period and $0.03 ahead of estimates. Revenues increased 47% to $239.6 million.
Tele Danmark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLD)") else Response.Write("(NYSE: TLD)") end if %>, the main communications services provider in Denmark, connected for a $3 11/16 gain to $50 7/8 after reporting a 18.3% rise in per-share earnings before one-time items in the first half of the year and a 27.4% increase in revenues. The company said it is "confident" it will meet its goal of double-digit EPS growth for the year.
PC maker and marketer Gateway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> slid $3 1/8 to $52 1/4 after cutting prices of its Solo line of notebook computers by as much as 6%. Elsewhere, other box and computing products makers were down as well. Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> lost $2 5/16 to $30 3/16 and Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> slipped $8 5/16 to $116 3/4.
Gold mining company Barrick Gold Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABX)") else Response.Write("(NYSE: ABX)") end if %> was drilled $1 3/16 to $13 3/16 after the price of gold sank to a 19-year low on concerns Russia might flood the market by selling some of its gold reserves to bolster its sagging economy. Fellow miner Placer Dome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDG)") else Response.Write("(NYSE: PDG)") end if %> also fell $11/16 to $8 11/16.
Internet conglomerate America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> fell $8 1/2 to $96 1/2 despite reporting yesterday that the worldwide membership of its namesake online service passed the 13 million customers mark. Other Internet-related stocks also traded lower this morning. Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> sank $7 9/16 to $83 1/2, Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> slumped $5 5/8 to $28 5/8, Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> slid $13 1/4 to $105 3/4, Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> declined $3 to $20 3/4, and MindSpring Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSPG)") else Response.Write("(Nasdaq: MSPG)") end if %> slipped $4 13/16 to $29 15/16.
Forage and turf seed developer AgriBioTech <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABTX)") else Response.Write("(Nasdaq: ABTX)") end if %> was mowed down for another $1 15/32 loss to $8 9/32 on continuing fallout from market rumors earlier this week suggesting the company would restate its earnings figures. The company has denied the rumors, calling them "lies placed on the Internet by short sellers."
Financial planning software firm Intuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> lost $4 1/2 to $40 3/4 despite reporting fiscal Q4 EPS of $0.03 versus a $0.19 loss a year ago, beating the First Call mean estimate by $0.02. Net revenue rose 48% year-over-year in the quarter to $117.3 million.
Discount shoe retailer Payless Shoesource <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PSS)") else Response.Write("(NYSE: PSS)") end if %> tripped $2 3/4 to $45 11/16 after Morgan Stanley Dean Witter downgraded the stock to "neutral" from "outperform."
Vitamin and sports nutrition products retailer General Nutrition Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNCI)") else Response.Write("(Nasdaq: GNCI)") end if %> deflated $2 13/16 to $14 1/2 after BancAmerica Robertson Stephens lowered its long-term rating to "attractive" from "accumulate."
Ethernet local area network (LAN) switches and hubs maker MRV Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRVC)") else Response.Write("(Nasdaq: MRVC)") end if %> slid $7 13/16 to $6 9/16 after saying that weak demand and delayed product launches will result in lower-than-expected revenues and earnings, sequentially lower gross margins, and higher operating expenses in fiscal Q3. Revenues are expected to come in 10% to 15% below the $65.7 million reported last year.
Biotechnology firm EntreMed <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENMD)") else Response.Write("(Nasdaq: ENMD)") end if %> gave back $2 1/4 to $18 1/2 after rising 13% yesterday on word that it had received a "composition of matter" patent for its angiostatin protein, which has shown some cancer-killing traits in recent studies.
Coffeehouse operator and Frappuccino marketer Starbucks Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBUX)") else Response.Write("(Nasdaq: SBUX)") end if %> fell $3 1/4 to $30 15/16 this morning. Yesterday, the company reported a 3% year-over-year rise in August same-store sales and a 26% rise in net sales to $108 million during the month.
Camel cigarettes and Oreo cookies maker RJR Nabisco Holdings Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> slumped $15/16 to $22 1/16 despite being chosen to replace MCI Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCIC)") else Response.Write("(Nasdaq: MCIC)") end if %> on the Standard & Poor's 500 Index.
Cadence Design Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %> slipped $1/4 to $23 3/4 after announcing it will buy Lucent Technologies' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> Bell Labs Design Automation Group and provide electronic design automation services to Lucent for three years. Terms of the agreement weren't revealed, but Lucent will purchase software products and services from Cadence. Lucent dropped $3 3/8 to $79 5/16.
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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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