DJIA 9337.46 +156.03 (+1.70%) S&P 500 1247.50 +18.27 (+1.49%) Nasdaq 2231.85 +39.16 (+1.79%) Value Line Index 937.04 +9.20 (+0.99%) 30-Year Bond 101 13/32 -31/32 5.16% Yield
FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump
Walgreen's Growth Continues
Shares of drugstore owner Walgreen Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAG)") else Response.Write("(NYSE: WAG)") end if %> slipped 3/16 to $58 3/8 this morning as the company announced earnings per share (EPS) for its first fiscal quarter (ending November 30) of $0.21, meeting the First Call consensus estimate. This nearly 20% increase in EPS is a good start to a year that will likely be the company's 25th consecutive year of record revenues and profits. Same-store sales jumped 10.4% in Q1, driven by a 18.9% surge in the pharmacy department. Prescriptions now account for 53% of sales, up from 45% less than three years ago. The outlook for prescription sales continues to be favorable, with price increases far outstripping inflation and increased use of pharmaceuticals due to new products and the aging of America.
Although significantly smaller than rivals such as CVS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVS)") else Response.Write("(NYSE: CVS)") end if %> and Rite Aid Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAD)") else Response.Write("(NYSE: RAD)") end if %> measured by number of stores, Walgreen is the nation's largest drugstore chain in terms of sales. The company was the first to focus on building freestanding stores, rather than those tucked in the midst of strip shopping centers. These stores tend to offer more convenience such as more accessible parking and drive-thru windows. In addition, they are less susceptible to competition from discounters and grocery chains that might also be located in a strip center. This has helped lead to average store sales in excess of $6 million, compared to $3-$4 million for its major rivals. Currently about 65% of stores (around 1,700) are freestanding.
Walgreen has also differed from its competitors in not using acquisitions to fuel growth. While other chains have been fueling significant consolidation, Walgreen hasn't acquired another chain since 1986. This is primarily because most other chains have a high proportion of strip center stores that the company doesn't want to own. Without acquisitions, the company has had to rely on internal growth. Walgreen opened 304 new or relocated stores in fiscal 1998. Plans call for at least a store a day to open in 1999, for a total of over 3,000 stores in the year 2000. Longer-term goals call for 6,000 stores by the year 2010.
Walgreen's consistent performance has led to a premium price/earnings ratio over its primary competitors, which are expected to have equal or greater growth. Trading at 49x earnings estimates for fiscal 1999 with an estimated growth rate of 15%, investors are paying a platinum multiple for a superb company.
Audio Book Club <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KLB)") else Response.Write("(NYSE: KLB)") end if %> recorded a $1 1/2 gain to $13 1/8 after agreeing to acquire Columbia House Audiobook Club from Columbia House Co., a joint venture between Sony Corp.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNE)") else Response.Write("(NYSE: SNE)") end if %> Sony Music Entertainment Inc. and Time Warner <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWX)") else Response.Write("(NYSE: TWX)") end if %>, for an unspecified amount of cash and stock. The firm expects the deal will more than double its annual revenues to about $50 million and add about 600,000 new members to its current member list of 400,000. Part of the financing for the deal will come from a new financing package from Fleet National Bank and ING Barings, the company said.
Online brokerage firm E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> traded up $8 9/32 to $55 1/16 after saying it will split its stock 2-for-1 after the close of trading on January 29. The company claims that keeping its stock price at a level comparable to those of its competitors will help to enlarge its base of shareholders.
Teenage apparel retailer dELiA*s Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DLIA)") else Response.Write("(Nasdaq: DLIA)") end if %> jumped $3 1/8 to $15 5/8 after announcing plans to file a registration statement with the SEC for an initial public offering of an undisclosed stake in its Internet-related businesses, including its www.gURL.com community site and www.dElLiAs.com e-commerce site.
Gentex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNTX)") else Response.Write("(Nasdaq: GNTX)") end if %>, which makes automatically dimming rearview mirrors and commercial fire protection products, gained $3 11/16 to $23 11/16 after saying that higher-than-expected unit shipments and margins for its mirrors will result in Q4 EPS $0.03 to $0.04 greater than the $0.19 the company said analysts had been anticipating.
Hilton Hotels Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> booked a $2 1/16 gain to $14 13/16 after announcing late Thursday that it has completed the separation of its lodging and gaming units. Under the terms of the transaction, Hilton shareholders will receive one share in the newly formed Park Place Entertainment Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPE)") else Response.Write("(NYSE: PPE)") end if %> for each Hilton share owned. Park Place will operate Hilton's casino gaming holdings, including the three Mississippi casinos recently acquired from Grand Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %>.
"When it rains, it pours" salt and specialty chemicals maker Morton International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MII)") else Response.Write("(NYSE: MII)") end if %> picked up $1 11/16 to $26 3/16 after an analyst told Barron's that the firm's shares could trade as high as $33 per share this year on the back of the positive buzz surrounding its new coating for wood products.
Farm equipment makers Case Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSE)") else Response.Write("(NYSE: CSE)") end if %> and Deere & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DE)") else Response.Write("(NYSE: DE)") end if %> started the new year on the right foot as Legg Mason raised its ratings on both firms to "outperform" from "market perform." Case reaped a $2 7/16 gain to $24 1/4, while Deere harvested a $1 5/8 gain of its own to $34 1/2. Last year, Deere's shares dropped 38% and Case's shares suffered a 60% decline.
Telecommunications giant AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> rang up $3 7/16 to $79 3/16 after Merrill Lynch raised its near-term rating to "accumulate" from "neutral" and boosted its long-term opinion to "buy" from "accumulate." Merrill expects AT&T will combine its wireless phone and the cable assets of merger mate Tele-Communications Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %> into a single tracking stock separate from the company's long-distance business sometime this year. For its own part, TCI picked up $3 3/16 to $58 1/2.
Bandwidth management technologies firm Adaptec Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %> rose $1 3/16 to $18 3/4 after announcing that its new 64-bit RAID (redundant array of independent disks) controller will be available to original equipment manufacturers (OEMs) sometime this month. The controller will effectively double the bandwidth for today's departmental and enterprise class servers, according to the company.
Wireless communications company AirTouch Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> lost $2 7/16 to $70 this morning after both it and local phone company Bell Atlantic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> confirmed yesterday that Bell is in talks to buy AirTouch in a deal valued at roughly $45 billion in stock. Such a deal, when combined with the pending merger of Bell Atlantic and GTE Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %>, would create a nationwide wireless network rivaling those of AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> and Sprint <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>. Bell Atlantic lost $11/16 to $53 5/16 this morning.
Internet browser developer Spyglass Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPYG)") else Response.Write("(Nasdaq: SPYG)") end if %> cracked this morning, falling $6 5/8 to $15 3/8 after pre-announcing a fiscal Q1 loss of between $0.16 and $0.14 per share, better than last year's $0.28 loss but below First Call's three-analyst $0.01 per share profit estimate. The company said several "significant" transactions didn't close during the quarter (ended Dec. 31) as expected.
U.K. chemicals giant Imperial Chemical Industries' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICI)") else Response.Write("(NYSE: ICI)") end if %> American depositary receipts shed $1 5/16 to $33 5/8 following the announcement of the cancellation of plans to sell chemical assets to DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> and NL Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NL)") else Response.Write("(NYSE: NL)") end if %> because of objections by the FTC. DuPont gained $4 1/16 to $57 1/8 while NL advanced slightly this morning.
Mainframe re-engineering software developer SEEC Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEC)") else Response.Write("(Nasdaq: SEEC)") end if %> fell $1 3/16 to $5 1/4 after it said it expects fiscal Q3 results to come in between break-even and a $0.02 per share profit, missing the $0.06 per share projection one analyst gave First Call. The company blamed broad market slowdown in Year 2000 activity and lagging sales in the U.K. and Asia for the shortfall.
Call center management software provider Davox Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DAVX)") else Response.Write("(Nasdaq: DAVX)") end if %> hung up $1 7/32 to $6 13/32 following its announcement that Q4 EPS is seen coming in at between $0.05 and $0.07 per share, approximately one-half Wall Street's $0.12 projection. Disappointing international revenue and a decline in service revenues caused by the bankruptcy of a major customer were listed as culprits.
Staffing and business consultant Modis Professional Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MPS)") else Response.Write("(NYSE: MPS)") end if %> lost $13/16 to $13 13/16 after it said it will eliminate some 290 jobs, or 8% of its workforce, close 23 branches, and take an after-tax charge of up to $30 million. The company expects earnings per share before charges to "meet or exceed" analysts' forecasts for the fourth quarter and full-year 1998.
High-end storage systems company Box Hill Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BXH)") else Response.Write("(NYSE: BXH)") end if %> unpacked $3/8 to $5 after the company said it expects to report a "slight profit that is significantly below expectations" when it turns in Q4 results in February.
Analytic application software developer Hyperion Software Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HYSL)") else Response.Write("(Nasdaq: HYSL)") end if %> dropped $2 to $16 after Goldman Sachs cut its rating on the company to "market outperform" from "recommended."
Wine and wine products direct marketer Geerlings & Wade <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GEER)") else Response.Write("(Nasdaq: GEER)") end if %> dripped off $1 5/16 to $7 7/8 after advancing $1 15/16 on Friday following news of planned changes for its website.
Airborne Freight Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABF)") else Response.Write("(NYSE: ABF)") end if %> unloaded $2 9/16 to $33 1/2 after PaineWebber downgraded the stock to "attractive" from "buy," setting a 12-month target price of $41 per share.
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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 |