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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
PeopleSoft Reaffirms Outlook
PeopleSoft Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %>, the number two provider of enterprise application software for business gained $2 5/16 to $31 7/8 this morning after reiterating its positive outlook for the balance of its fiscal year (and beyond) in a conference call last night. The company reaffirmed its expectation that total revenues in the third quarter will grow 60% year-over-year, and that cumulative 1998 results will see top-line growth in the range of 60-65% compared with 1997. As well, PeopleSoft forecast 1998 operating margins in the company's target range between 18-20%. Nothing new here -- it seems that PeopleSoft just wanted to clearly articulate its present business position in the wake of six months worth of inquiries regarding its operations and the enterprise resource planning (ERP) market as a whole.
Systems management software has grown in tandem with the applications market. Client/server's rapid acceptance hinged on its flexibility, and as it progressed, the complexity of performing systems management tasks increased dramatically. With respect to the enterprise resource planning market as a whole, PeopleSoft cited recent forecasts made by AMR Research that ERP is set to grow at a compound average rate of 37% over the next five years, with license revenues growing 33% and service revenues set to grow by 45%. PeopleSoft's second quarter yielded some pretty sweet growth on these various fronts as revenue from services came in at $172 million, up 97% from the same period last year, while license revenue grew 53% from the prior year and maintenance revenue increased by 97% year-over-year, to $68.1 million.
Investors need to decide how they want to value the services business associated with ERP companies. As the complexity mounts, ERP customers are forcing vendors to manage implementation projects and get more heavily involved on the ancillary services side of things. As many commentators have noted, the consulting engagements that are emerging from this trend are resulting in improved customer satisfaction levels and subsequently, increased follow-on product sales. The thing is, the consulting business is growing more quickly than license revenue for almost every vendor in the enterprise software business. Seeing how PeopleSoft is managing its financial software business, online transaction processing applications, and the growing opportunities it is creating in the international space (PeopleSoft 7.5 will be key), it is definitely worth a closer look for investors unafraid of untangling a segment with lofty valuations.
Royal Dutch Petroleum Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RD)") else Response.Write("(NYSE: RD)") end if %> picked up $2 7/8 to $48 5/16 after the oil and gas exploration and production company yesterday signed a much-anticipated European refining and marketing agreement with American rival Texaco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TX)") else Response.Write("(NYSE: TX)") end if %>. Royal Dutch/Shell group sibling Shell Transport & Trading <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SC)") else Response.Write("(NYSE: SC)") end if %> rose $2 5/8 to $36 3/4. Texaco fell $1/4 to $57 7/16, however, as some observers were disappointed that the companies agreed to a joint venture rather than a full-fledged merger.
Minneapolis-based bank holding company U.S. Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USB)") else Response.Write("(NYSE: USB)") end if %> added $15/16 to $39 1/4 after agreeing yesterday to buy privately held investment bank Libra Investments for unspecified terms. Libra specializes in underwriting and trading high-yield and so-called mezzanine securities, which are commonly issued in leveraged buyouts, management buyouts, or to companies that have not yet gone public.
Truck rental company Ryder System <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: R)") else Response.Write("(NYSE: R)") end if %> hitched a ride $1 3/16 higher to $21 3/16 after receiving an upgrade to "outperform" from "neutral" from Morgan Stanley Dean Witter.
Oil and gas exploration and production company Bellwether Exploration Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BELW)") else Response.Write("(Nasdaq: BELW)") end if %> moved up $5/8 to $5 1/2 after announcing a $5 million share buyback plan.
Real estate investment trust (REIT) Crescent Real Estate Equities Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEI)") else Response.Write("(NYSE: CEI)") end if %> gained $13/16 to $24 15/16 after reaching an agreement with Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> to cancel a planned forward equity swap and repurchase the 6.6 million Crescent shares held by the investment bank for the transaction. To pay for the shares, Crescent is planning a $215 million rights offering, which will give its shareholders the right to buy more Crescent shares at a $22 per share strike price.
Automotive safety systems designer Breed Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDT)") else Response.Write("(NYSE: BDT)") end if %> climbed $1 9/16 to $8 1/2 after saying that a restatement of its financial results to take into account a previously announced $244 million repositioning charge "will not have a material adverse effect" on the company's previously reported financial results. The company plans to release a delayed financial statement for Q4 and fiscal 1998 "as soon as practicable."
Pharmaceutical and health care products developer Pharmacia & Upjohn <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNU)") else Response.Write("(NYSE: PNU)") end if %> gained $1 1/16 to $45 5/8 after the FDA approved the company's CeeOn replacement eye lenses, which are designed to replace the eye's natural lens in patients with a cataract.
Global positioning satellite (GPS) navigation technologies firm Trimble Navigation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRMB)") else Response.Write("(Nasdaq: TRMB)") end if %> picked up $1 5/16 to $11 1/4 after its board approved a continuation of its one million share stock buyback program, which had been suspended on Aug. 20.
Membership warehouse club retailer Costco Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COST)") else Response.Write("(Nasdaq: COST)") end if %> advanced $1 3/8 to $51 5/16 courtesy of Prudential Securities, which raised its rating on the company to "accumulate" from "hold."
Information technology consulting firm Cotelligent Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CGZ)") else Response.Write("(NYSE: CGZ)") end if %> rose $7/8 to $11 5/8 after announcing a plan to buy back up to 2 million shares, or about 14% of its outstanding common stock.
Mineral and metals mining and smelting company Cominco Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CLT)") else Response.Write("(AMEX: CLT)") end if %> added $1 1/16 to $11 1/2 after announcing a 2 million share repurchase plan.
Major banks and financial services companies were among the most heavily traded losers this morning. Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> fell $3 3/8 to $95 1/8 while merger partner Travelers (NSYE: TRV) dipped $2 1/4 to $38 7/8 as CIBC Oppenheimer lowered what will be the combined company's 1999 earnings estimate to $3.85 from $4.24 a share. Meanwhile, J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> dropped $2 1/2 to $86 1/4 as Oppenheimer cut its rating on company to "hold" from "strong buy." Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> lost another $2 1/2 to $46 3/4, Morgan Stanley Dean Witter <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWD)") else Response.Write("(NYSE: MWD)") end if %> slumped $3 1/2 to $50 1/8, NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> suffered a $2 5/16 loss to $54 15/16, NationsBank merger partner BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> was trimmed $2 7/16 to $61 5/8, American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> slid $3 15/16 to $73 5/16, BankBoston <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKB)") else Response.Write("(NYSE: BKB)") end if %> lost $1 3/8 to $34 7/8, and Donaldson, Lufkin & Jenrette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLJ)") else Response.Write("(NYSE: DLJ)") end if %> slipped $1 3/16 to $29 11/16.
Smaller financial corporations also lost ground. FirstPlus Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FP)") else Response.Write("(NYSE: FP)") end if %> tumbled $3 5/16 to $19 3/4, Capital One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> was hit for a $4 9/16 loss to $86 7/16, Imperial Bancorp (NSYE: IMP) was cut $7/8 to $19 3/4, PVF Capital Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PVFC)") else Response.Write("(Nasdaq: PVFC)") end if %> slipped $2 to $11, and Cameron Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMRN)") else Response.Write("(Nasdaq: CMRN)") end if %> dropped $1 1/2 to $15 3/4.
Wireless telecommunications firm Omnipoint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMPT)") else Response.Write("(Nasdaq: OMPT)") end if %> tanked $1 3/4 to $9 3/8 on news that its CFO, Bradley Sparks, who was instrumental in the company's 1996 initial public offering, has resigned to become executive vice president and CFO of digital network company WAM!NET Inc. Also, CS First Boston lowered its rating on Omnipoint to "hold" from "buy."
Bankers Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> shed $1 7/16 to $65 1/16 after The Wall Street Journal's "Heard on the Street" column reported that the nation's seventh largest bank is the only major U.S. financial institution that, to date, expects to report a loss this quarter due to the turmoil in the global markets.
Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %>, maker of the impotence drug Viagra, sank $5 1/8 to $94 3/4 after Morgan Stanley downgraded its rating on the company to "neutral" from "outperform."
Home-equity lender Delta Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DFC)") else Response.Write("(NYSE: DFC)") end if %> pulled back $1 3/8 to $6 3/4 after Salomon Smith Barney cut its rating on the company to "outperform" from "buy," citing difficult operating conditions in the mortgage industry.
KPN NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KPN)") else Response.Write("(NYSE: KPN)") end if %> fell $1 3/16 to $36 9/16 as the Netherlands' dominant phone company warned that its operating profit could fall by a third, or about $500 million, because Dutch regulators have forced the company to reduce call rates.
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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 |