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FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump
McKesson HBOC Discharged
Healthcare information and pharmaceutical distributor McKesson HBOC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCK)") else Response.Write("(NYSE: MCK)") end if %> went into cardiac arrest this morning after the company restated sales and earnings for the past year. Investors discharged the stock from their portfolio, inflicting a $31 11/16 loss to $34 1/16. Due to improperly recorded sales, fiscal Q4 (ended March) revenues were overstated by $26.2 million and operating earnings per share were reduced to $0.56 from $0.62. For the fiscal year, operating earnings were reduced from $2.06 to $1.97. Even worse, the company management believes "it prudent to revise our EPS goal for fiscal 2000 to $2.50." That's a far cry from the statement one week ago, when the management originally announced last quarters results and boasted, "these positive trends provide confidence and visibility of McKesson HBOC to achieve our $3.00 EPS goal for fiscal 2000."
A reasonable person might look at the income statement and earnings projection statement and believe that the market has overreacted to the situation. Earnings from last year were only cut 4%, the projection for next year was reduced 17%, yet the stock was hit for a 48% loss. Assuming the company's earnings projection for the year is accurate, the stock is trading at a P/E ratio of less than 14x earnings for the current fiscal year, with a growth rate of 25% or so. That looks like a Foolishly good deal. One big caveat, though, is you have to have a high level of confidence in those projections. Unless you know something the general public hasn't been informed of, that confidence is simply not there.
Most Wall Street analysts will dutifully lower their earnings estimates to $2.50 or so, with one or two rebels probably going down to $2.40-$2.45. The published long- term growth rate will probably drop to 25% or so from the current 30%. But none of the analysts will trust those estimates. They use them because they're safe -- they're what the company projected. In their gut, however, they're waiting for the next disappointment to hit the wires. Do you believe management will meet these revised estimates? Just a week ago they were talking about confidence in their ability to earn $3.00 per share.
With this earnings restatement, investors are left wondering what is wrong with the financial controls at McKesson HBOC. How could procedures allow this improper revenue to be recorded? Some might blame the old HBOC, which merged with McKesson at the beginning of 1999. The problems might have originated with HBOC, but why weren't they discovered during McKesson's due diligence? Until these questions are answered and McKesson HBOC demonstrates it can re-ignite growth in its healthcare information technology unit, investors can find better investment opportunities.
Group and individual disability insurer UNUM Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNM)") else Response.Write("(NYSE: UNM)") end if %> got $4 1/2 to $52 1/16 after the company said it plans to leave the reinsurance pool management operations and risk assumption businesses to concentrate on its core disability insurance operations. UNUM said Q1 EPS before charges was $0.72, up from $0.65 last year and flat with estimates. Merger partner Provident Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PVT)") else Response.Write("(NYSE: PVT)") end if %>, which reported Q1 EPS of $0.52 -- a penny short of Street estimates -- absorbed $3 1/16 to $37 13/16 this morning.
Stainless steel flatware maker Oneida Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OCQ)") else Response.Write("(NYSE: OCQ)") end if %> shone $3 3/4 to $25 after the company's board rejected an unsolicited buyout proposal from Libbey Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LBY)") else Response.Write("(NYSE: LBY)") end if %>. The $30 per share cash offer represented a 41% premium to yesterday's closing price. Oneida said it "is in the best interests of the company... for Oneida to remain independent" and added that it believed there would be "significant" regulatory hurdles for a deal with Libbey.
Eyeglasses maker Luxottica Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUX)") else Response.Write("(NYSE: LUX)") end if %> improved $2 3/8 to $15 5/16 following the news that it agreed to buy Bausch & Lomb's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOL)") else Response.Write("(NYSE: BOL)") end if %> sunglasses business -- which includes the Ray-Ban, Revo, Arnette and Killer Loop lines -- for $640 million in cash. Bausch & Lomb picked up $2 3/4 to $81 3/4.
Inks and coatings products maker Lawter International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LAW)") else Response.Write("(NYSE: LAW)") end if %> rose $3 1/16 to $12 following news that Eastman Chemical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMN)") else Response.Write("(NYSE: EMN)") end if %> agreed to buy the company for $12 1/4 per share in cash, about a 37% premium over yesterday's closing price. Lawter also said Q1 EPS was $0.17, up from $0.14 last year and beating First Call's $0.15 three-analyst consensus estimate.
Website designer Razorfish Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAZF)") else Response.Write("(Nasdaq: RAZF)") end if %> took $16 5/8 to $50 1/8 in its second day of trading. The stock got $17 1/2 yesterday after selling 3 million shares in an initial public offering at a price of $16 per share.
Precision automotive fuel systems maker Walbro Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WALB)") else Response.Write("(Nasdaq: WALB)") end if %> sped ahead $7 3/16 to $19 1/2 after agreeing to be bought by London's TI Group for $20 per share, a more than 62% premium to yesterday's closing price. Both companies' boards have approved the deal.
Property and casualty insurer Acceptance Insurance Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIF)") else Response.Write("(NYSE: AIF)") end if %>, which hired Warburg Dillon Read to help examine strategic alternatives, moved ahead $1 1/8 to $13 5/8 this morning. The company said Q1 EPS was $0.30 before charges, down from $0.40 last year but beating First Call's $0.24 three-analyst mean projection.
Georgia bank operator First Liberty Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FLFC)") else Response.Write("(Nasdaq: FLFC)") end if %> took $7 7/8 to $31 1/8 on news that BB&T Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBT)") else Response.Write("(NYSE: BBT)") end if %> agreed to buy the company for about $33 1/4 worth of BB&T stock per share based on yesterday's closing price -- about a 43% premium.
Diagnostic products, specialty pharmacy services, and disease management company Chronimed <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHMD)") else Response.Write("(Nasdaq: CHMD)") end if %> added $3/8 to $6 on news that it hired Paine Webber to "explore strategic alternatives to enhance shareholder value which may include a merger or sale of all or part of the company." The announcement came as the company reported fiscal Q3 EPS of $0.04, down from $0.12 a year ago.
Apparel maker Phillips-Van Heusen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PVH)") else Response.Write("(NYSE: PVH)") end if %> buttoned up $1 9/16 to $8 1/4 after Prudential Securities upgraded the stock to "strong buy" from "hold."
Earnings Movers
Aetna <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AET)") else Response.Write("(NYSE: AET)") end if %> up $4 7/8 to $86 1/2 Q1 EPS $1.08 vs. $0.90 last year; estimate: $1.01
Allegheny Teledyne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALT)") else Response.Write("(NYSE: ALT)") end if %> up $9/16 to $22; Q1 EPS $0.33 (before one-time items) vs. $0.35 last year; estimate: $0.30
Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> up $3/8 to $98 1/8; Q1 EPS $0.36 (before charges) vs. $0.26 last year; estimate: $0.36
Bio-Rad Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BIO.A)") else Response.Write("(AMEX: BIO.A)") end if %> up $2 15/16 to $28 5/8; Q1 EPS $0.89 vs. $0.72 last year; no estimate
Borg-Warner Automotive <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BWA)") else Response.Write("(NYSE: BWA)") end if %> up $1 15/16 to $57 11/16; Q1 EPS $1.32 vs. $1.09 last year; estimate: $1.30
Coherent Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COHR)") else Response.Write("(Nasdaq: COHR)") end if %> up $1/8 to $14 5/8; fiscal Q2 EPS $0.22 vs. $0.29 last year; estimate: $0.21
Conseco Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNC)") else Response.Write("(NYSE: CNC)") end if %> up $1 9/16 to $31 3/4; Q1 EPS $0.92 (excludes investment loss) vs. $0.70 last year; estimate: $0.90
IKON Office Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IKN)") else Response.Write("(NYSE: IKN)") end if %> up $1/16 to $12 1/8; fiscal Q2 EPS $0.15 vs. $0.27 last year; estimate: $0.14
Jones Apparel Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNY)") else Response.Write("(NYSE: JNY)") end if %> up $5/8 to $32 3/16; Q1 EPS $0.51 vs. $0.37 last year; estimate: $0.43
Osteotech Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OSTE)") else Response.Write("(Nasdaq: OSTE)") end if %> up $1 1/4 to $32 1/2; Q1 EPS $0.22 vs. $0.15 last year; estimate: $0.20
United States Lime & Minerals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USLM)") else Response.Write("(Nasdaq: USLM)") end if %> up $2 to $9 1/2; Q1 EPS $0.12 vs. $0.08 last year; no estimate
Biopharmaceutical company Scios Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCIO)") else Response.Write("(Nasdaq: SCIO)") end if %> tumbled $5 15/16 to $3 3/4 after the FDA rejected the company's New Drug Application for its Natrecor congestive heart failure treatment due to "uncertainties" about the drug's safety and effectiveness. The company also posted a Q1 loss of $0.26 per share (including charges and gains) compared to earnings of $0.03 per share a year ago.
Sound Blaster multimedia technologies firm Creative Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CREAF)") else Response.Write("(Nasdaq: CREAF)") end if %> was blown away for a $2 3/16 loss to $11 11/16 after reporting fiscal Q3 EPS of $0.20, down from $0.48 a year ago and short of the First Call mean estimate of $0.25. Gross profit margins slid to 26% in the quarter from 32% a year ago, while operating margins slipped to 5.5% from last year's 14.5% as price competition in the multimedia market took its toll.
Winemaking and processing services firm Golden State Vintners <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VINT)") else Response.Write("(Nasdaq: VINT)") end if %> spilled $3 1/2 to $6 7/8 after warning that a reduced California grape harvest and softness in the premium bulk wine spot market will result in fiscal 1999 earnings $0.15 to $0.25 per share short of the current First Call mean estimate of $1.22 per share.
Carpet and interior upholstry products maker Interface Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFSIA)") else Response.Write("(Nasdaq: IFSIA)") end if %> was stained with a $3 5/16 loss to $6 7/8 after saying slow fabric sales and weakness in the U.K. carpet market resulted in Q1 EPS of $0.11, down from last year's $0.20 and below the First Call mean estimate of $0.16. The company expects fiscal 1999 EPS between $0.65 and $0.75, missing analysts' estimates of $1.00.
Infection prevention and surgical support systems maker Steris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STE)") else Response.Write("(NYSE: STE)") end if %> dropped $7 7/8 to $16 after reporting fiscal Q4 EPS of $0.41 compared to $0.29 a year ago, topping the Zacks mean estimate of $0.36. However, CFO Donald Smith resigned after saying his job responsibilities were "not what [he] expected" when he came to the company three months ago. BT Alex. Brown cut its rating on the company to "market perform" from "buy."
Disk drive maker Quantum Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> was spun for a $2 13/16 loss to $17 9/16 after posting fiscal Q4 EPS of $0.33, up from $0.02 a year ago and in line with the First Call mean estimate. However, the company reportedly said in its conference call that it expects sequentially flat revenues and lower earnings in the current quarter due to heightened price competition. That forecast sent rival Seagate <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> down $2 11/16 to $29 1/2 and Western Digital <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> $5/8 lower to $8 1/4. To hear a replay of the Quantum call, dial (800) 696-1563 and enter code 524603.
Outdoor clothing maker Columbia Sportswear Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COLM)") else Response.Write("(Nasdaq: COLM)") end if %> fell $1 1/2 to $14 3/8 after Goldman Sachs reportedly reduced its rating on the company to "market outperformer" from "recommended list."
Williamson, West Virginia-based bank holding company Matewan BancShares <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MATE)") else Response.Write("(Nasdaq: MATE)") end if %> fell $6 to $24 after BB&T Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBT)") else Response.Write("(NYSE: BBT)") end if %> reduced the value of its proposed stock acquisition of the company to about $124 million from an original $159 million following a due diligence review.
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Contributing Writers Brian Graney (TMF Panic), a Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |