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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
King of the Hill
Discount brokerage leader Charles Schwab <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCH)") else Response.Write("(NYSE: SCH)") end if %> moved up $2 5/8 to $39 13/16 after announcing that it expects to report an estimate-beating earnings performance for its third quarter. The San Francisco-based discount brokerage pioneer and Internet brokerage leader said heavy trading volumes, the strength of its domestic business, good expense and risk management, and "the absence of any international proprietary trading" accounted for expected earnings of $90 to $97 million, or diluted EPS of $0.30 to $0.35.
Analysts had been expecting EPS of $0.28 to $0.32, with a mean estimate of $0.30, so the performance beat the guidance of management and also surpasses the company's first half performance on a return on equity base. For the first half of the year, Schwab reported an annualized return on (beginning) equity of 25%, down from 31.6% in 1997. This quarter, annualized return on (beginning) equity will reach anywhere from nearly 30% to 32%. The strong performance reflects strong operating leverage in the business model -- defining leverage here as a percentage change in earnings brought about by a smaller percentage change in revenues.
Schwab's outperformance of the market today speaks not only to a re-discounting of larger earnings but to the performance of the business of the company that is more in line with historical returns on equity and operating leverage. The reason why Schwab has in the past carried higher multiples to owners' equity and invested capital is due to its greater capital productivity and account growth. Both of those were affirmed this morning, as customer assets grew 19% year-over-year. After a weak performance earlier this year, Schwab has handily outperformed the market since midyear. The company has proved that price isn't the key point to performance and has relied on good infrastructure, product offerings, and excellent mindshare among customers. While a good deal of Internet business is still very much up for grabs, with E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> being the focus of attention with new offerings, Schwab is still very much the King of the Hill.
Wireless communications systems and chip maker Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> tacked on $2 5/16 to $46 1/4 after agreeing to sell its components products division, which includes its ceramic, quartz, oscillator, piezoelectric, and surface acoustic wave operations, to CTS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTS)") else Response.Write("(NYSE: CTS)") end if %> for an estimated 1.2 times the unit's annual sales. CTS gained $1 7/16 to $29 7/16 on the news. Motorola also said it will halt construction of a new chip plant near Richmond, Virginia, due to low chip demand and prices.
Telecommunications network access equipment maker Teledata Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLDCF)") else Response.Write("(Nasdaq: TLDCF)") end if %> rose $1 1/16 to $14 7/16 after high speed network transmission systems developer ADC Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADCT)") else Response.Write("(Nasdaq: ADCT)") end if %> agreed to buy the company for $15.75 per share in cash. The purchase price represents a 15% premium to Teledata's closing price of $13 3/8 per share yesterday. ADC gained $5/8 to $24 1/2.
Online media streaming technologies company RealNetworks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %> moved up $4 13/16 to $24 7/16 after announcing that it will license online video streaming technology from Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>. In addition, the chip giant will help RealNetworks promote and market the technology to video users on the Web.
Wireless radio frequency chip maker RF Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RFMD)") else Response.Write("(Nasdaq: RFMD)") end if %> climbed $1 3/8 to $18 1/8 after saying higher-than-anticipated wafer availability from a supplier and higher demand from its Korean clients will result in fiscal Q2 EPS of $0.09 to $0.10, beating the Street's mean estimate of $0.06. Revenues are expected to come in between $28 million and $30 million, which is ahead of the $25.6 million that the company said analysts had been expecting.
Casual clothing retailer Abercrombie & Fitch Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANF)") else Response.Write("(NYSE: ANF)") end if %> advanced $2 1/2 to $51 1/2 on news that it will be added to the Standard & Poor's MidCap 400 index to replace Saks Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKS)") else Response.Write("(NYSE: SKS)") end if %>, which is merging with Proffitt's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFT)") else Response.Write("(NYSE: PFT)") end if %>.
Family apparel retailer Stage Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGE)") else Response.Write("(NYSE: SGE)") end if %> gained $1 7/8 to $14 1/2 after saying that it is comfortable with the Street's mean fiscal Q3 earnings estimate of $0.06 per share, although it is "cautious" about the business outlook for the remainder of the quarter and into Q4. Same-store sales are up 5% from a year ago in the first six weeks of Q3, which the company attributed to back-to-school shopping, added promotional campaigns, spring and summer clearances, and less extreme weather conditions.
Sporting goods retailer The Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> added $7/16 to $7 3/8 after announcing that the CEO title will be added to the office door of current vice chairman Martin Hanaka. Founder and previous CEO Jack Smith will retain his role as chairman.
Midmarket server-based enterprise software developer Great Plains Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GPSI)") else Response.Write("(Nasdaq: GPSI)") end if %> gained $2 3/4 to $41 1/2 after reporting fiscal Q1 EPS of $0.15 compared to $0.11 last year, beating the Street's mean estimate by a penny. The company cited strong demand for its client/server products for Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> NT operating system.
Enterprise application software firm Progress Software Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRGS)") else Response.Write("(Nasdaq: PRGS)") end if %> advanced $1 5/8 to $25 1/8 after reporting fiscal Q3 EPS of $0.31 versus $0.11 a year ago, topping the Street's mean estimate of $0.24.
Consumer appliance, TV broadcasting, and financial services company General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> picked up $2 7/8 to $80 15/16 after Merrill Lynch raised its near-term rating to "buy" from "accumulate" and named the stock a "focus 1 selection."
Satellite-based communications services company PanAmSat Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPOT)") else Response.Write("(Nasdaq: SPOT)") end if %> was launched $3 1/8 to $43 1/4 after saying that its PAS-7 video and communications satellite was successfully sent into orbit early this morning. The satellite will service the Indian Ocean region, according to the company.
Hotel real estate investment trust (REIT) Patriot American Hospitality <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAH)") else Response.Write("(NYSE: PAH)") end if %> added $1 1/2 to $13 7/8 after the company decided to keep its paired-share REIT status, despite Congress's decision to close a beneficial tax loophole and rival Starwood Lodging's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOT)") else Response.Write("(NYSE: HOT)") end if %> recent announcement that it will change to corporation status. Patriot American said the paired-share format will maximize its "internal growth potential."
Team sports equipment and apparel maker Rawlings Sporting Goods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAWL)") else Response.Write("(Nasdaq: RAWL)") end if %> was slammed for a $1 3/4 loss to $9 after warning it expects a fiscal Q4 loss of $0.23 to $0.28 per share due to lower-than-anticipated sales of baseball-related products as well as a delay in basketball and football orders. The company also said it is immediately discontinuing the sale of adult 2 3/4 inch barrel aluminum bats to meet new NCAA rules limiting the maximum barrel diameter to 2 5/8 inches, and will write off all bats currently in inventory.
Government-sponsored student loan funds provider SLM Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLM)") else Response.Write("(NYSE: SLM)") end if %> slipped $1 1/4 to $33 1/2 after The Wall Street Journal's "Heard on the Street" column reported that SLM's Q3 earnings growth could evaporate due to disruptions in the asset-backed securities market, which are making it more expensive for the company to resell the student loans it buys from small banks around the country.
Minimally invasive medical devices maker Circon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCON)") else Response.Write("(Nasdaq: CCON)") end if %> plunged $3 7/8, or 29.3%, to $9 3/8, after U.S. Surgical Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USS)") else Response.Write("(NYSE: USS)") end if %> late yesterday announced that it had terminated its tender offer for the company. The decision to drop the offer came in light of U.S. Surgical's proposed merger with Tyco International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TYC)") else Response.Write("(NYSE: TYC)") end if %> and Circon's recent announcement that it has invited other companies to make acquisition bids. U.S. Surgical fell $1 1/4 to $41 1/4, while Tyco, which was downgraded to "outperform" from "strong buy" by Morgan Stanley Dean Witter, lost $1 11/16 to $54 11/16.
Discount fashion retailer Stein Mart Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMRT)") else Response.Write("(Nasdaq: SMRT)") end if %> tanked $1 19/32 to $6 9/16 after this morning announcing that it expects to incur a "modest" net loss for the third quarter. Analysts had been predicting earnings of around a nickel a share. The company said results in July and August were "below plan" due to "a longer-than-anticipated correction of earlier merchandising issues and the current operating environment."
Aeroquip-Vickers Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANV)") else Response.Write("(NYSE: ANV)") end if %>, which makes engineered components and systems for the industrial, aerospace, and automotive markets, tumbled $5 9/16 to $35 3/16 after warning it expects Q3 EPS of $0.80 to $0.87, lower than analysts' expectations of $1.00 to $1.11. The company blamed the shortfall mainly on "lower sales and unfavorable sales mix in Vickers' industrial and mobile business compared with a year ago."
Metal alloy manufacturer Carpenter Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRS)") else Response.Write("(NYSE: CRS)") end if %> dropped $4 1/16 to $32 5/8 after announcing it expects fiscal Q1 EPS of $0.50 to $0.55 compared with $0.82 last year and analysts' expectations of $0.68. The company also expects Q2 earnings to fall below those of the same year-earlier period of $0.89 a share. Carpenter has been hurt by a slower-than-expected rebound from the General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> strike, inventory adjustments by its aerospace customers, lower sales to the oil exploration and semiconductor industries, and uncertainty over U.S. and world economies.
Cement and structural steel supplier Texas Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXI)") else Response.Write("(NYSE: TXI)") end if %> was knocked down $3 3/8 to $28 9/16 after reporting fiscal Q1 EPS of $1.17, which was a penny above last year but short of analysts' mean estimate of $1.23.
Furniture maker Bush Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSH)") else Response.Write("(NYSE: BSH)") end if %> was cut $3 1/8 to $15 after announcing it expects Q3 EPS of $0.05 to $0.10 and Q4 EPS of $0.25 to $0.30, substantially short of analysts' mean estimates of $0.31 for Q3 and $0.59 for Q4. The company expects Q3 sales to fall 8% to 12% from a year ago primarily because of delays in introducing new products.
Trucking company Arkansas Best Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABFS)") else Response.Write("(Nasdaq: ABFS)") end if %> plummeted $2 1/4, or 31%, to $5 after warning that it expects Q3 EPS to be 15% to 20% lower than EPS from continuing operations of $0.39 in the same year-ago period. That means Q3 EPS will be roughly $0.31 to $0.33 compared with analysts' expectations of $0.46.
Midway Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDWY)") else Response.Write("(Nasdaq: MDWY)") end if %> dropped $3 1/2 to $13 after Morgan Stanley Dean Witter lowered its rating on the company to "outperform" from "strong buy" and cut its EPS estimates to $1.56 from $1.66 for this year and to $1.90 from $1.95 for next year. This came despite the company's announcement yesterday that passenger traffic in August increased 18.7% to 92.4 million revenue passenger miles.
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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 |