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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
Sanmina Leana and Meana
Electronics contract manufacturer and backplane manufacturer Sanmina Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANM)") else Response.Write("(Nasdaq: SANM)") end if %> was short-circuited for a $2 1/16 loss to $25 3/16 after announcing this morning that it expects to report fourth quarter earnings and revenues below estimates. The company said revenues will be below plan for the quarter due to "product shipment delays," very likely due to customer pushouts (requests to delay delivery of product). The mean analysts' estimate of $195 million in revenues for the quarter, according to I/B/E/S, is within the range of the company's estimate of $190 million to $195 million; however, two estimates averaging $215.5 million were pulled down by one estimate of $154 million.
Sanmina expects to report EPS of $0.38 to $0.39, below the mean estimate of $0.43. Overall, the results will be largely in-line with last quarter's revenues of $197.1 million and EPS of $0.40. Sanmina has carried a large valuation premium to its peers in the contract manufacturing and circuit board fabrication industry due to its consistent growth, good returns on capital, and the high value-added component lent to the company's financial profile by its backplane manufacturing. Due to the backplane business that serves the high end of communications equipment companies, medical equipment makers, and other complex electronics manufacturers, pricing and margins have held up better than for lower layer count circuit board companies that have faced intensified Asian competition.
The company also announced this morning the acquisition of Altron <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALRN)") else Response.Write("(Nasdaq: ALRN)") end if %>, a smaller circuit board manufacturer with 1997 revenues of $172.4 million. Although Altron recently agreed to acquire a Hewlett-Packard circuit board facility and showed second quarter revenue growth of $27%, 1997 was not a great year for the company, as revenue growth was under 5% and operating income fell 17.7%. However, Sanmina will be able to cut out some overhead and take out some industry capacity with this move, improving somewhat Altron's performance. In addition, Sanmina's management has a much better reputation for performance. The acquisition of Altron will be done with Sanmina shares, with an exchange ratio of 0.4545 Sanmina shares per Altron share, with a collar valuing each Altron share at $13.635. The maximum amount of shares to be issued under that price collar will be 0.5681 Sanmina shares per Altron share, which at the moment prices Altron within the $13.635 collar. Trading at $11 13/16, Altron is priced 13.4% below the exchange value, meaning the market believes there's some deal risk and that Sanmina will go lower from here. At that discount, though, the arbitrage looks very interesting, and the market has already bid up Sanmina from this morning's low due to a not-too-shocking pre-announcement and the quality of this deal.
Computing products and services company IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> gained $4 3/16 to $122 1/8 after signing a 10-year, $3 billion information technology support partnership with British telecommunications company Cable & Wireless PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %>. Cable & Wireless rose $1 1/16 to $29 15/16.
New media marketing company CKS Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CKSG)") else Response.Write("(Nasdaq: CKSG)") end if %> jumped $1 13/16 to $15 15/16 after agreeing to merge with online development services firm USWeb Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USWB)") else Response.Write("(Nasdaq: USWB)") end if %> in a stock swap valued at about $344.4 million. Under the deal, each CKS share will be exchanged for 1.5 shares of USWeb stock, with the combined company to be called Reinvent Communications Inc. USWeb dropped $15/16 to $13 1/2.
Internet portal company Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> was boosted $4 3/4 to $77 after the company was chosen to replace MCI Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCIC)") else Response.Write("(Nasdaq: MCIC)") end if %> on the Nasdaq-100 Index. The company also struck a deal with Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>, making Amazon its premier online bookseller for many of Yahoo's country-specific websites around the world. Amazon moved up $5 13/16 to $85 3/4 on the news.
Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> rose $3 5/8 to $27 5/8 after Morgan Stanley Dean Witter started coverage of the Internet portal firm with an "outperform" rating. The company also launched a new home and real estate channel on its flagship website.
Internet software and portal company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> advanced $1 5/16 to $22 7/16 after saying 750,000 web users registered for its Netcenter portal site in August, or a 93% gain since the revamped site debuted.
Mac, iMac, and computing products developer Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> gained $2 3/4 to $36 7/8 after CEO Steve Jobs told a conference in San Francisco that the company is shipping "tens of thousands" of its new iMac computers each week and that the machine is currently sold out in Japan for the rest of the month.
Internet conglomerate America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> picked up $4 3/8 to $89 3/8 after signing a three-year partnership with privately held online trading community eBay. Under the deal, AOL will receive a total of $12 million in guaranteed payments from eBay.
Number four U.S. cable company Comcast Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMCSA)") else Response.Write("(Nasdaq: CMCSA)") end if %> added $1 13/16 to $39 11/16 after announcing a $500 million share buyback plan yesterday and receiving an upgrade to "strong buy" from "buy" this morning from SG Cowen.
Internet service provider MindSpring Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSPG)") else Response.Write("(Nasdaq: MSPG)") end if %> bounded ahead $3 5/8 to $33 7/8 after launching a new version of its namesake website. Robinson-Humphrey also raised its short-term rating on the company to "strong buy" from "market perform."
Online audio streaming software developer RealNetworks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %> tacked on $2 5/8 to $20 1/8 after BancBoston Robertson Stephens upgraded the company to "strong buy" from "attractive" late yesterday.
Call automation systems developer InterVoice <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTV)") else Response.Write("(Nasdaq: INTV)") end if %> rang up $2 3/16 to $18 15/16 after pre-announcing fiscal Q2 revenues of $33 million and EPS between $0.29 and $0.31 per share, beating the First Call mean estimate of $0.23. The company said it achieved the higher-than-expected results through a 10% sequential increase in sales and cost-cutting efforts, which helped "hold the line" on operating expenses.
Dense wavelength division multiplexing (DWDM) systems maker Ciena <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> sank $4 3/8 to $29 1/4 and voice and data transport and access systems maker Tellabs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> lost $1 7/8 to $44 5/8 after announcing they have postponed the Sept. 9 shareholder votes on their proposed merger and now anticipate holding the special shareholder meetings in mid-November.
Women's footwear designer and retailer Nine West Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NIN)") else Response.Write("(NYSE: NIN)") end if %> tripped for a loss of $4 9/16 to $11 9/16 after announcing that it expects full fiscal year earnings of $1.30 to $1.50 per share due to continued weakness in the footwear market worldwide. That falls far short of last year's $2.23 per share in profits and the analysts' mean estimate of $2.08. For Q2, the company reported EPS of $0.60, a decrease from $0.78 in the same year-ago period.
Party supplies retailer Party City Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCTY)") else Response.Write("(Nasdaq: PCTY)") end if %> was a party pooper this morning, falling $6 5/16 to $9 15/16 after warning it expects to report a Q3 net loss of $0.15 to $0.18 a share, compared with a $0.02 loss last year, as a result of lower-than-anticipated sales in July and August. Analysts had predicted a loss of around $0.09 per share.
UniCapital Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCP)") else Response.Write("(NYSE: UCP)") end if %> plunged $4 1/4, or 50%, to $4 1/4 after Morgan Stanley Dean Witter downgraded shares of the consolidator of equipment leasing and specialty finance businesses to "outperform" from "strong buy."
3D graphics hardware and software developer Evans & Sutherland Computer Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESCC)") else Response.Write("(Nasdaq: ESCC)") end if %> dropped $2 5/8 to $15 1/8 after warning it expects Q3 to be slightly profitable with EPS of $0.02 to $0.04, compared with $0.35 in the prior-year quarter and analysts' expectations of $0.41. The company said it expects a "substantially stronger" fourth quarter due to strength in its simulation businesses and partial recovery in its graphics unit.
Rent-Way Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RWAY)") else Response.Write("(Nasdaq: RWAY)") end if %> dipped $7/8 to $22 1/4 and Home Choice Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMCH)") else Response.Write("(Nasdaq: HMCH)") end if %> shed $1 5/16 to $11 3/8 after announcing that Rent-Way will acquire Home Choice to become the nation's second largest company in the rental-purchase industry, operating 847 stores in 32 states. Home Choice shareholders will receive 0.588 of a Rent-Way share for each Home Choice share. Based on yesterday's close, that's a 7% premium for Home Choice.
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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 |