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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
Online Express
Everyone's heard about Drugstore.com, PlanetRx.com, and Soma.com, but now add a new name to the list -- YourPharmacy.com. The announcement of a new addition to the increasingly crowded online pharmacy space sent shares of pharmacy benefits manager (PBM) Express Scripts Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESRX)") else Response.Write("(Nasdaq: ESRX)") end if %> up $21 7/16 to $95 1/2 this morning, marking the first time a PBM has entered online retailing. The firm announced plans to launch two websites in the second quarter of this year -- online drugstore YourPharmacy.com and DrugDigest.org, which will provide consumer drug information (with no product advertising). In addition to prescription drugs, Express Scripts will sell roughly 15,000 health and beauty items online in what is shaping up to be a direct challenge to the niche occupied by the corner drugstore (although when you need that deodorant, you need it right away).
Thus far, Express Scripts has understandably dragged its feet when confronted with processing prescription drug charges for products ordered online (boosting your competition's economic position is never warmly embraced). Since Express Scripts already has a robust mail-order business -- it is the second-largest provider of mail order pharmacy services offering about 35,000-prescriptions a day -- going online is a no-brainer. Although Express really doesn't want to cannibalize its mail order business (supplying drugs by mail reduces costs due to lower dispensing fees), the 13% of retail drug sales that are delivered by mail order is exactly the market that the online firms are going after. It's either participate or see some market share erosion. Since profitability improves with a higher unit volume environment (through purchase discounts and fixed cost leverage), Express hopes to participate in what may ultimately prove to be a rapidly expanding market.
With the pending acquisition of Diversified Pharmaceutical Services, Express will ultimately service a block of about 48 million people. Part of the investment story for Express so far has centered around the fact that payors have been reluctant to turn over the management of drug benefit programs to manufacturers (most of the Express competition), whose primary interest is selling branded drugs. This investment theme should continue, as well as the issue of rising drug costs in an environment where payors have traditionally dedicated their time toward cost reductions on other fronts. Express Script's strong return on invested capital profile (15%) should only improve considering moderate invested capital growth going forward -- on the face of it, the online foray certainly won't hurt.
[Correction: In yesterday's Fool Plate Special, we stated that eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> didn't offer a fraud protection service. We have since become aware that the company began offering this service on March 1. We regret the error.]
Online services giant America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> grabbed $16 1/2 to $148 7/8 after it unveiled details about the alliance between its Netscape division and Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>, which will work to develop new e-commerce software. The first product to come out of this venture is expected to ship in Q1 of 2000. Elsewhere, PaineWebber raised its price target on AOL shares to $215 from $125 while reiterating a "buy" rating on the stock. Sun rose $1 3/8 to $125 7/8 this morning.
Enterprise software firm Sapient Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAPE)") else Response.Write("(Nasdaq: SAPE)") end if %> gained $6 1/2 to $70 1/2 after it announced plans to acquire Adjacency Inc., a San Francisco-based consulting firm, in exchange for 790,675 shares of company stock -- about $50.6 million worth based on yesterday's closing price -- and the assumption of Adjancency's stock options, exchangeable for approximately 63,000 additional Sapient shares. Sapient expects the buy to be "non-dilutive, excluding a one-time acquisition charge and compensation charges related to historical stock option grants."
High-flying casual apparel retailer American Eagle Outfitters <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AEOS)") else Response.Write("(Nasdaq: AEOS)") end if %> wrapped up a move of $2 5/8 to $74 1/8 after it announced a 2-for-1 stock split, effective May 3.
Eyecare company Bausch & Lomb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOL)") else Response.Write("(NYSE: BOL)") end if %> won $11/16 to $61 11/16 after it said it will acquire privately held ophthalmic diagnostic technology firm Orbtek Inc. for an undisclosed sum. Bausch & Lomb said Orbtek's "unique technology is a natural addition" to the company's portfolio of refractive solutions.
Spray paint equipment maker Binks Sames Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BIN)") else Response.Write("(AMEX: BIN)") end if %> took on $2 3/8 to $18 1/2 after it said it received "unsolicited inquiries by parties interested in acquiring all or a part of the company." Binks Sames has put its financial advisor on the job examining the offers and other strategic alternatives. Part of the company's impetus for listening carefully to the offers involves a lawsuit filed March 24 by competitor Illinois Tool Works about the purchase price adjustment for a Binks Sames division sold to Illinois Tool in November.
Central and Eastern European commercial television company Central European Media Enterprises Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CETV)") else Response.Write("(Nasdaq: CETV)") end if %> tuned in $4 to $12 1/2 after SBS Broadcasting SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBTVF)") else Response.Write("(Nasdaq: SBTVF)") end if %> agreed to buy the company in a stock deal valuing the company at $15 5/16 per share based on yesterday's close, about an 80% premium. Central also reported full-year losses of $5.19 per share, down from a $3.56 loss the year before and missing First Call's three-analyst $4.27 loss estimate.
Internet website co-location services and direct access provider AboveNet Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABOV)") else Response.Write("(Nasdaq: ABOV)") end if %> rose $23 to $103 7/8 after announcing plans for a two-for-one stock split effective May 7. Yesterday morning the company reported a joint venture to build one of its Internet service exchanges in Frankfurt, Germany.
Jersey City brokerage M. H. Meyerson & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MHMY)") else Response.Write("(Nasdaq: MHMY)") end if %> picked up $19/32 to $5 1/32 this morning after announcing fiscal Q4 EPS of $0.04, handily topping last year's $0.34 per share loss. Meyerson was one of the lesser-known brokerage stocks caught up in a rush of Internet-minded speculation earlier this year.
Southern California commercial banking company East West Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EWBC)") else Response.Write("(Nasdaq: EWBC)") end if %> deposited $1 1/2 to $9 after it last night announced plans to buy back $7 million in company shares on the open market or through private transactions. The company completed another $7 million repurchase in January.
Drugstore operator Rite Aid Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAD)") else Response.Write("(NYSE: RAD)") end if %> gained $1 to $26 11/16 after at least three brokerages set positive ratings on the stock. Yesterday, the shares moved back slightly after fiscal Q4 EPS was worse than the company expected.
Delta Air Lines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DAL)") else Response.Write("(NYSE: DAL)") end if %> lifted off $2 3/8 to $71 3/8 this morning as Morgan Stanley Dean Witter lifted its price target on the company's shares to $80 from $65 and reinstated coverage of the stock with an "outperform" rating.
Bikes and sporting goods company Huffy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUF)") else Response.Write("(NYSE: HUF)") end if %> skidded $1 13/16 to $13 1/2 after saying it expects Q1 EPS (before charges) to be between $0.08 and $0.12, with earnings from continuing operations to be approximately half that. The two analysts surveyed by First Call had a called for EPS of $0.30. Huffy said margins at its bicycle division will be "significantly" lower than Q1 a year ago but are expected to rebound in the second half.
Carbonated beverages marketer Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> went flat this morning and fell $1 7/8 to $62 15/16 after warning that it anticipates worldwide case-volume sales to fall by 1% to 2% in Q1 due to weakness in international markets. Analysts had been forecasting 1% to 2% case volume growth during the period. Salomon Smith Barney lowered its rating on the firm to "neutral" from "buy" while Goldman Sachs reduced its opinion to "market perform" from "recommended list." For more details, see this morning's Breakfast With the Fool.
Digital audio and video tool creator Avid Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVID)") else Response.Write("(Nasdaq: AVID)") end if %> slid $6 5/8 to $17 3/4 after saying recent changes in the way the SEC views the accounting treatment of in-process R&D related to acquisitions has prompted it to reduce its $193.7 million Q3 charge for the purchase of Softimage Inc. to $28.4 million. The move will result in a series of smaller quarterly charges by the firm over the next two years. Additionally, Avid said its Q1 revenues will be below the $144.6 million reported in Q4. At least three brokerages downgraded the company this morning.
Elderly long-term care provider Centennial HealthCare <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTEN)") else Response.Write("(Nasdaq: CTEN)") end if %> dropped $5 7/8 to $9 5/8 after the Department of Health and Human Services' inspector general subpoenaed documents in connection with a civil investigation into possible "improper" Medicare claims by four of the company's facilities. Centennial said it is cooperating with the investigation.
Floral importer and wholesale distributor U.S.A. Floral Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROSI)") else Response.Write("(Nasdaq: ROSI)") end if %> was mowed down for a $5 1/4 loss to $5 5/8 after saying lower import demand from South America, lower Dutch export supply, and the strength of the dollar resulted in lower-than-expected Q1 revenues. For the quarter, the firm forecasts EPS between $0.21 and $0.24, missing the First Call mean estimate of $0.47. Full year EPS is seen between $0.65 and $0.70, below analysts' expectations of $1.06.
Global satellite and paging company Iridium World Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IRID)") else Response.Write("(Nasdaq: IRID)") end if %> slipped $3 9/16 to $16 3/8 after Merrill Lynch lowered its near-term rating to "neutral" from "accumulate." Yesterday, the company's shares fell 8% after CFO Roy Grant announced he would step down next month.
Communications and electronic products maker Harris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRS)") else Response.Write("(NYSE: HRS)") end if %> slumped $1 15/16 to $29 3/4 after saying weakness in South America, China, and other international markets is hurting its communications business and will result in fiscal Q3 EPS between $0.50 and $0.54, shy of the First Call mean estimate of $0.60.
Wonder Bread and Hostess snack foods maker Interstate Bakeries Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBC)") else Response.Write("(NYSE: IBC)") end if %> was burned $1 1/8 to $21 5/8 after posting fiscal Q3 EPS of $0.41, a penny above last year's results but a penny short of the Zacks mean estimate.
Financial guaranty insurer and reinsurer Enhance Financial Services Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EFS)") else Response.Write("(NYSE: EFS)") end if %> slipped $1 15/16 to $18 13/16 on a pair of downgrades from Advest and Donaldson, Lufkin & Jenrette.
Specialty insurer Meadowbrook Insurance Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MIG)") else Response.Write("(NYSE: MIG)") end if %> was shot down for a $1 1/2 loss to $15 5/16 after saying it will increase its loss reserves by $2.7 million in Q1 and reduce the expected recoveries from its discontinued surety bonds operation by $2 million, resulting in a Q1 loss between $0.14 and $0.16 per share. The company said analysts had been expecting earnings of $0.27 to $0.35 per share. For the year, EPS is seen between $0.70 and $0.73, also below previous expectations.
Controlled-release drug maker Alza Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZA)") else Response.Write("(NYSE: AZA)") end if %> lost another $1 15/16 to $38 13/16 this morning, adding to yesterday's 11% drop, after Bear Stearns lowered its rating on the company to "attractive" from "buy."
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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |