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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
BARRA Berated by the Market
BARRA Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BARZ)") else Response.Write("(Nasdaq: BARZ)") end if %>, a provider of analytical models, software, consulting, investment data, and money management services was crushed for $4 1/8 to $19 1/12 this morning after pre-announcing an earnings shortfall and receiving a downgrade from "buy" to "hold" at Hambrecht & Quist. Yesterday, the firm announced that it expects earnings per share for the fiscal third quarter (ended Dec. 31) to be 15% to 25% below the $0.39 cents a share it reported a year ago -- four analysts at First Call had projected $0.43 cents a share. The company stated that performance fees from its asset management business will be about 50% lower than the $10.7 million posted in the prior year largely due to "volatility in the securities markets."
Considering what BARRA does, it's a somewhat ironic justification for a shortfall. BARRA collects data from roughly 60 sources (including proprietary data from strategic partners) and then it applies proprietary "rules" to create risk models for various markets -- offering the whole package on a subscription basis. Manipulation of readily available raw data by value-added services has historically been far from an impenetrable business. Brand name fostered by strategic alliances has always been the road to glory. However, the principal competitive factors that distinguish these organizations over the years, as well as the determinants of future success for smaller database concerns, are the same: quality, reliability and comprehensiveness of the analytical services and data provided; flexibility in tailoring services to client needs; experience; innovation; the capability of technical and client service personnel; data processing and decision support software; reputation, price, and geographic coverage.
In addition to its "core software products," BARRA offers a variety of trading and consulting services -- including POSIT, the company's electronic crossing network that allows institutions to trade securities in an "off-market" environment, as well as Symphony Asset Management. In BARRA's Q2, revenue was driven by record trading volumes at POSIT and a surge in performance-related anniversary fees at Symphony (to 23% compared with estimates for 10%). Even with the shortfall, interested investors should keep an eye on BARRA -- the core business, though cut into by the more volatile hedge fund and transaction-based businesses, has a growth rate that should remain strong in 1999.
Internet access provider EarthLink Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELNK)") else Response.Write("(Nasdaq: ELNK)") end if %> moved up $4 5/16 to $66 3/4 despite stating last night that it expects to report losses for Q4 of fiscal 1998 and throughout fiscal 1999. However, the company, which just signed up its 1 millionth member, also anticipates Q4 revenue will double to roughly $58.3 million. That was enough to prompt Everen Securities to upgrade EarthLink this morning, bumping up the firm's intermediate-term rating to "outperform" from "market performer."
Online retailer Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> moved up $8 to $126 5/16 after announcing Q4 sales of $250 million, which were 3.5 times higher than the $66 million posted last year. From Nov. 17 through Dec. 31, the company said it shipped 7.5 million items, eclipsing the total number of items shipped during all of 1997.
Electronic design automation tools maker Avant! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %> jumped $3 to $18 after a U.S. District Court judge ordered that the firm and rival Cadence Design Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %> meet and settle their long-running legal dispute through court-supervised mediation, rather than in the courtroom.
Several semiconductor capital equipment makers gained ground today as SoundView Technology raised its opinion on a trio of firms. Lam Research Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LRCX)") else Response.Write("(Nasdaq: LRCX)") end if %>, which was upgraded to "buy" from "hold," gained $3 5/16 to $22 5/16. Yield management firm KLA-Tencor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> was upgraded to "strong buy" from "hold," lifting its shares $3 5/16 to $49 1/16. Backplane fabrication firm Teradyne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TER)") else Response.Write("(NYSE: TER)") end if %> rose $1 7/8 to $44 as the company's rating was raised to "strong buy" from "buy." Riding the coattails, fabrication systems big daddy Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> added $2 3/8 to $46 11/16, wafer stepper maker ASM Lithography <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> picked up $2 1/2 to $34 7/8, and Novellus Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NVLS)") else Response.Write("(Nasdaq: NVLS)") end if %> advanced $2 7/8 to $54 7/8.
Satellite systems maker and DirecTV DBS operator Hughes Electronics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GMH)") else Response.Write("(NYSE: GMH)") end if %> gained $3 5/8 to $42 1/2 after Merrill Lynch raised its near-term rating to "buy" from "accumulate" on a more positive outlook for the company following its recent deal to acquire United States Satellite Broadcasting <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USSB)") else Response.Write("(Nasdaq: USSB)") end if %>. USSB rose $1 1/8 to $14 7/16.
Organ transplant-related pharmaceutical developer SangStat <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANG)") else Response.Write("(Nasdaq: SANG)") end if %> belted out a $3 1/16 gain to $25 13/16 after the FDA approved the company's Thymoglobulin drug, an antibody that decreases organ rejection rates in kidney transplant recipients.
Home healthcare services provider Apria Healthcare Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHG)") else Response.Write("(NYSE: AHG)") end if %> was nursed $3/4 higher to $9 5/8 on dual upgrades to "strong buy" from BT Alex. Brown and Prudential Securities this morning, possibly prompted in part by recent insider buying at the company.
Britain's Vodafone Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VOD)") else Response.Write("(NYSE: VOD)") end if %> gained $8 13/16 to $183 7/16 after it confirmed reports that it has "made an approach" to wireless communications company AirTouch Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIT)") else Response.Write("(NYSE: AIT)") end if %> about a possible merger. Vodafone's bid, which is reportedly in the $45 billion neighborhood, sets the stage for a possible bidding war with recently unveiled fellow suitor Bell Atlantic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %>. For more details, see this morning's Breakfast With the Fool.
Photodynamic medical therapies developer QLT PhotoTherapeutics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QLTIF)") else Response.Write("(Nasdaq: QLTIF)") end if %> flashed ahead $4 1/4 to $26 15/16 after an investigation with the CIBA Vision unit of Switzerland's Novartis A.G. found that a "significant number of patients" with the "wet" form of age-related macular degeneration were able to preserve their eyesight thanks to QLT's Visudyne therapy. The results were from the initial 12-month phase of the company's 24-month long Phase III study of Visudyne.
Number one computer retailer CompUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> slipped $5/8 to $12 1/8 after saying its comparable store sales fell 4.7% in its fiscal second quarter ended December 26 as the average selling price of personal computers fell by 20% from the same quarter a year ago. Part of the decline was chalked up to a highly successful sales promotion plan for its recently converted Computer City stores, which lowered the company's margins. However, the Computer City sales were not included in the comparable store sales calculation.
Gourmet coffee vendor Starbucks Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBUX)") else Response.Write("(Nasdaq: SBUX)") end if %> spilled $3 3/16 to $50 11/16 after reporting a 1% increase in same-store sales for the five weeks ended December 27. That figure and total revenue growth of 22% both fell short of recent trends due primarily to slow sales of the company's holiday merchandise, Starbucks said.
Department store operator J.C. Penney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %> was marked down $1 3/4 to $45 1/8 following a Bear Stearns downgrade to "neutral" from "attractive."
Biopharmaceutical company Centocor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNTO)") else Response.Write("(Nasdaq: CNTO)") end if %> slid $15/16 to $41 11/16 after Morgan Stanley Dean Witter cut its rating on the firm to "outperform" from "strong buy" and adjusted its 12-month price target to $51 per share from $62 per share.
German enterprise software giant SAP A.G. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAP)") else Response.Write("(NYSE: SAP)") end if %> was knocked down $3 1/16 to $31 1/2 after saying its fiscal 1998 pre-tax profits rose by only 15%, which was below expectations, due to an accelerated decline in the firm's Japanese business and a new method to account for the ongoing financial problems in Russia. On the bright side, the company posted "extraordinarily strong" revenue growth of 40% for the year.
Electrical and industrial equipment manufacturer Raychem Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RYC)") else Response.Write("(NYSE: RYC)") end if %> fell $3 1/16 to $30 1/16 after saying its fiscal Q2 EPS will be about $0.40, or $0.08 short of the First Call mean estimate, due in part to a 7% year-on-year slide in revenues from the telecommunications, energy, and industrial segment of its business.
Information storage devices maker Storage Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STK)") else Response.Write("(NYSE: STK)") end if %> was socked with a $2 15/16 loss to $31 1/2 after saying its Q4 EPS will come in between $0.50 and $0.55, which is below the $0.67 to $0.77 range of estimates by analysts surveyed by First Call. Revenues are expected to rise sequentially but fall on a year-on-year basis in the quarter, as sales of new products failed to make up for lower sales of older, high-margin products.
Electronics and furniture rent-to-own store operator Rent-A-Center Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RCII)") else Response.Write("(Nasdaq: RCII)") end if %> dropped $1 to $29 1/2 after CFO Danny Wilbanks resigned "to pursue other business opportunities."
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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 |