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FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump
Network Appliance Connects Again
<% ' AvantGo:FoolPlate %>Network Appliance <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTAP)") else Response.Write("(Nasdaq: NTAP)") end if %> rose $2 7/8 this morning to $73 1/8 after announcing robust growth in its Q2 earnings release, along with a two-for-one stock split. Earnings per share increased 57% to $0.22 per share, while overall net income increased 71% to $8.4 million. These numbers beat analysts estimates of $0.20 by a couple of pennies. Total revenues jumped 71% for both the quarter and six month period to $66 million and $123 million, respectively. The stock split will be distributed on or about December 21st. NTAP makes "network appliances" -- data network storage devices that provide fast, reliable, and cost-effective file service for data-intensive network environments -- as well as dedicated internet caching appliances and software that help reduce network traffic, improve user response time, and enhance security.
The quarter looked just as strong as the reported numbers. Gross margin remained constant at 59%. Operating expenses increased 0.9 percentage points to 40.1%. Virtually all of this increase is attributable to increased sales and marketing expenditures, which rose 0.8 percentage points to 26%. This level is flat with the sales and marketing expense ratio of Q1 and is consistent with the company's strategy of boosting its presence in the marketplace. NTAP continued to invest a healthy 10.2% of revenues into research and development during Q2. Other income increased by 0.9 percentage points, offsetting the increased marketing expenses and leaving pretax margin flat at 20.4%. The tax rate of 37.5% was unchanged, resulting in net income being a healthy 12.8% of revenue.
First Call estimates for the current year (prior to the Q2 earnings release) were $0.86 for fiscal 1999 (ends in April), $1.28 for 2000, and $1.88 for 2001. Using the current price of $73 1/8, the stock is trading at 85x, 57x, and 39x those respective estimates, compared with a projected long-term growth rate of 38%. These high multiples may be justified if this industry pioneer continues its torrid growth, but could be overly optimistic if the company missteps. So far, however, the company has been making all the right connections. Stoking investor optimism is a Dataquest estimate that the market for storage appliances will grow from $900 million in 1998 to over $6 billion in 2002. In addition, Network Appliance earlier this month announced an OEM agreement with Dell, whereby Dell will bring NTAP's technology to the Windows NT and Windows 2000 platforms beginning in calendar 1999.
This stock is not for investors who are faint of heart. It has gone from $61 on September 29th, down to $32 on October 8th in the midst of the market downturn, before rebounding to its current price. Folks interested in small, fast-growing, technology companies may want to take a deeper look. To read a Foolish interview between Network Appliance Founder Dave Hitz and TMF Panic, click here. We would like to offer you a Q2 conference call replay number so you could hear what the company is telling analysts, but the company won't release that number to the general public. Hopefully, NTAP will soon realize that individual investors should have the same access to this information as the bigwigs on Wall Street.<% ' AvantGo:End %>
<% ' AvantGo:Ups %>Eyewear maker Bausch & Lomb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOL)") else Response.Write("(NYSE: BOL)") end if %> rose $2 to $49 7/8 on news that it brought in Warburg Dillon Read LLC to help examine strategic options, possibly including joint ventures, a sale, spin-offs, or other alternatives. Merrill Lynch upgraded the company's short-term rating to "accumulate" from "neutral."
Web portal company Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> traveled up $1 1/8 to $36 7/8 after Bell Atlantic Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> Bell Atlantic Electronic Commerce Services Inc. reported plans to sell 85% of its stake in Infoseek, which is 43% owned by Walt Disney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>. With around 1.2 million shares, Bell Atlantic Electronic Commerce is Infoseek's third-biggest shareholder. Infoseek also announced its Ultraseek Service 3.0, its newest web browser.
Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> brightened $1 1/8 to $67 13/16 after it won a hard-fought court victory against PC operating systems software giant Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>. A Federal judge in California ordered a preliminary injunction requiring Microsoft to rework its Windows 98 software, Internet Explorer browser, and software development programs to meet Sun's compatibility tests. There's more detail in today's Breakfast With the Fool.
Meanwhile, the Wall Street Journal reports that online services provider America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> is in talks with browser company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> regarding "a wide range of new partnerships," including a potential deal to embed Netscape's browser into AOL's software "alongside or in place of" Microsoft's Internet Explorer, sent Netscape shares up $5 1/8 to $34 3/8. AOL may make an equity investment in Netscape and get a seat on its board. The news double whammy pulled Microsoft down $1 15/16 to $109 15/16 this morning.
Audio books director marketer Audio Book Club <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KLB)") else Response.Write("(AMEX: KLB)") end if %> flipped up $1 1/8 to $9 1/2 after it announced an agreement with RealNetworks Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %> to sponsor Rolling Stone Radio, an Internet music service. RealNetworks worked its way up $2 1/16 to $43 5/16 this morning.
Online retailer Amazon.com Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> swung up $13 1/16 to $161 9/16 following yesterday's $22 1/4 rise on news of its opening two new stores on its website that sell videos, digital video disks (DVDs) and holiday gifts.
Networking software provider Novell Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVL)") else Response.Write("(Nasdaq: NOVL)") end if %> rose $1 1/8 to $16 3/16 after it demonstrated new Internet management technology at the COMDEX trade show and said Novell Directory Services will be compatible with Cisco Systems' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> routers and switches. Cisco, which Salomon Smith Barney started with a "buy" rating, gained $1 7/8 to $70 5/8 this morning.
Office superstore retailer Office Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> tacked on $1 7/16 to $30 5/8 after Merrill Lynch started coverage of the company with short- and long-term "buy" ratings. Monday, the company bought the remaining 50% interest in its French joint venture that it didn't own.
Drug developer Commonwealth Biotechnologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBTE)") else Response.Write("(Nasdaq: CBTE)") end if %> richened $2 1/4 to $9 3/8 after it said New York-based consultant Mattson Jack Group reported that the company's HepArrest cardiovascular surgery aid has market potential of $250 million annually. HepArrest does not currently have FDA approval.
Digital semiconductor devices maker Galileo Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GALTF)") else Response.Write("(Nasdaq: GALTF)") end if %> telescoped $2 1/16 to $15 1/2 after Merrill Lynch boosted its short-term rating on the company to "accumulate" from "neutral."
Clinical and management information systems company Cerner Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CERN)") else Response.Write("(Nasdaq: CERN)") end if %> improved $2 1/8 to $25 on yesterday's news that General Electric Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> agreed to buy 670,000 shares of Cerner common stock for $22.20 each. Cerner also announced a strategic alliance with GE Medical Systems to integrate Cerner's HNA Millennium RadNet Radiology Information System with GE Medical Systems' Picture Archive and Communication Systems (PACS) technology.
PC retailer Gateway Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> advanced $2 1/16 to $57 3/16 following Prudential Securities' upgrade of the company to "strong buy" from "accumulate."
Earnings Movers
Inference Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INFR)") else Response.Write("(Nasdaq: INFR)") end if %> up $23/32 to $6; Q3 EPS $0.06 vs. $0.29 last year; Estimate: $0.02
Medtronic Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> up $3/16 to $65 15/16; fiscal Q2 EPS $0.33 (before charges) vs. $0.30 last year; Estimate: $0.33
Software Spectrum <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSPE)") else Response.Write("(Nasdaq: SSPE)") end if %> up $7/8 to $16 1/8; fiscal Q2 EPS $0.30 vs. $0.14 last year; Estimate: $0.27
Zale Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZLC)") else Response.Write("(NYSE: ZLC)") end if %> up $1 1/8 to $28 1/2; fiscal Q1 operating income $0.06 vs. $0.00 (before item) last year; Estimate: $0.04<% ' AvantGo:End %>
<% ' AvantGo:Downs %>Enterprise resource planning (ERP) software firm Baan Co. NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAANF)") else Response.Write("(Nasdaq: BAANF)") end if %> fell $2 1/4 to $11 7/16 as a Dutch newspaper article reportedly cast doubts about the company's ability to recover from its third quarter loss last month, which was attributed to lower information technology spending by customers. Additionally, rumors have surfaced suggesting the company will delay or cancel a planned shareholders' meeting.
Knoxville, Tennessee-based apparel retailer Goody's Family Clothing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GDYS)") else Response.Write("(Nasdaq: GDYS)") end if %> was ripped $1 to $11 1/8 after reporting Q3 EPS of $0.10, down from the $0.16 earned last year and short of the Street's mean estimate of $0.13 per share. Same-store sales fell 3.9% during the period, while year-over-year same store-sales for the first two weeks of November are down 8%. The negative sales trends have prompted the company to be "cautious" about its prospects during the upcoming Christmas season.
Women's apparel catalog retailer Brylane Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYL)") else Response.Write("(NYSE: BYL)") end if %> was shredded $3 1/8 to $11 3/8 after reporting Q3 EPS of $0.05 (excluding charges), far below the $0.85 earned last year and well short of the First Call mean estimate of EPS of $0.18. The company said "weak response" to some of its offerings and higher expenses were behind the shortfall and will also result in "slightly" lower year-over-year sales in Q4.
Restaurant operator Cracker Barrel Old Country Store <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBRL)") else Response.Write("(Nasdaq: CBRL)") end if %> dropped $2 1/16 to $21 11/16 after reporting fiscal Q1 EPS of $0.42 versus $0.38 last year, which was in line with the Street's expectations. However, the company said combined restaurant and retail same-store sales slid 1.6% in the quarter. The slowing sales led the firm to guide analysts' earnings expectations for Q2 and fiscal 1999 lower than the current forecasts of $0.37 per share and $1.89 per share, respectively.
Food containers and aerospace technologies firm Ball Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLL)") else Response.Write("(NYSE: BLL)") end if %> was thrown for a $3 1/4 loss to $41 1/8 after BT Alex. Brown lowered its rating to "market underperform" from "market perform."
Online entertainment products retailer and direct marketer K-tel International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTEL)") else Response.Write("(Nasdaq: KTEL)") end if %> was knocked down another $1 7/8 to $10 1/8 on news yesterday that Nasdaq has told the company that it may be delisted because it does not meet the $4 million requirement for net tangible assets. K-tel, which has seen its share price drop 63% since last Wednesday, said it will try to obtain a temporary extension of its listing.
Several Internet-related recent high-flyers lost ground this morning. Why? Maybe because it's Wednesday. Whatever the reason, EarthWeb <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EWBX)") else Response.Write("(Nasdaq: EWBX)") end if %> was scorched $7 3/8 to $43 5/8, go2net <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNET)") else Response.Write("(Nasdaq: GNET)") end if %> dropped $4 3/8 to $34, theglobe.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGLO)") else Response.Write("(Nasdaq: TGLO)") end if %> was spun $3 9/16 to $36 7/8, and online auction newcomer Greg Manning Auctions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GMAI)") else Response.Write("(Nasdaq: GMAI)") end if %> lost $2 7/8 to $12.
Titanium mill and sponge products supplier Titanium Metals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIE)") else Response.Write("(NYSE: TIE)") end if %> slid $1 3/16 to $10 3/8 after Merrill Lynch lowered its near-term rating to "neutral" from "accumulate" and cut its long-term rating to "accumulate" from "buy."<% ' AvantGo:End %>
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), another Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |