HEROES
MAGNA BANCORP (Nasdaq: MGNL), parent company of Magnolia Federal Bank, gained $4 11/16 to $22 15/16 after agreeing to merge with banking company UNION PLANTERS CORP. (NYSE: UPC) in a stock swap valuing each Magna share at 0.5165 shares of Union Planters. Magna is another example of a smaller thrift that one might not notice if one didn't live in its service area. It's an earner, though, with a favorable interest rate spread as annualized interest expense on deposits was only 3.5%, total cost of funds was 4.7%, and yield on average earning assets was 9.8%. Return on assets was an excellent 1.72% for the second quarter and 1.7% through six months, excellent for a smaller banking company. Magna was able, then, to win a valuation of 2.5 times book value and 24.2% of assets.
VETERINARY CENTERS OF AMERICA (Nasdaq: VCAI) fetched a $2 3/8 move higher to $13 on posting Q1 revenues of $56 million, up 59%, and earnings per share (EPS) of $0.07, which buried estimates of $0.02. The secret of the company's success this quarter came from concentrating on what it does best -- its veterinary and diagnostics businesses -- having turned over management control of its pet food joint venture with H.J. HEINZ (NYSE: HYNZ) last quarter. Four cents per share, pre-tax, came from reducing general & administrative expenses devoted to that segment. The company also slimmed down its overall management overhead, which fell 16% sequentially while revenues grew 8% sequentially. Combined with a 4.8 percentage point increase in gross margin, this performance has investors sitting up and taking notice of a company that may be turning around its fortunes.
Information technology outsourcing company INFORMATION MANAGEMENT RESOURCES (Nasdaq: IMRS) gained $3 3/16 to $37 1/4 on reporting a multi-year contract with Michelin North America. Earlier this week, Information Management Resources reported Q1 revenues of $14.3 million, based on exceptional growth in its Year 2000 solutions business as well as a 43% increase in its core business of software development and support. Based on annual run-rate EPS of $0.40, the company is trading at about 93 times earnings. On 1997 earnings estimates of $0.52 per share, it's priced at 71 times earnings; and on 1998 estimates of $0.81 per share, it trades at 46 times earnings.
QUICK TAKES: NUMBER NINE VISUAL TECHNOLOGY CORP. (Nasdaq: NINE) powered $1 5/8 higher to $5 5/8 on investor optimism over the company's next-generation PC graphics chip... Enterprise software company GSE SYSTEMS (Nasdaq: GSES) gained $1 1/4 to $5 5/8 after yesterday announcing contracts worth more than $7 million for clients in the nuclear process, oil & gas, and specialty chemicals industries... BOSTON COMMUNICATIONS GROUP (Nasdaq: BCGI) was boosted $1 3/8 to $7 3/8 after the telephony services company received an Alex. Brown rating upgrade to "strong buy" from "buy"... AMERICA FIRST FINANCIAL L.P. (Nasdaq: AFFFZ) jumped $5 7/8 to $37 1/8 after it announced that BAY VIEW CAPITAL CORP. (Nasdaq: BVFS) will merge with its America First Eureka Holdings subsidiary, for which Bay View will pay $41.50 per America First Financial limited partnership unit... ANCHOR GAMING (Nasdaq: SLOT), one of companies discussed in this year's "Stocks for Mom" feature, jumped $5 3/8 to $33 1/4 on no news that the company was aware of... PARKER DRILLING (NYSE: PKD) moved up $1 to $9 after announcing a $195 million deal to acquire oil and gas driller Hercules Offshore... Electricity and gas company CALPINE CORP. (NYSE: CPN) gained $1 7/8 to $19 1/8 on reporting a 46% increase in first quarter cash flow, earning it a CS First Boston upgrade to "strong buy" from "buy"... ACCUSTAFF INC. (NYSE: ASI) jumped $1 5/8 to $21 7/8 on announcing that it will provide information technology training over the Internet... Energy industry construction stocks were lighting up traders' radar screens today, including SHAW GROUP (NYSE: SGR), up $1 to $16 3/4; J. RAY MCDERMOTT (NYSE: JRM), up $ 1 7/8 to $19 7/8; and MCDERMOTT INTERNATIONAL (NYSE: MDR), up $2 3/8 to $23 3/8... BOSTON TECHNOLOGY (NYSE: BSN) rose $1 5/8 to $25 3/4 after Piper Jaffray kicked off coverage of the telecom equipment company with a "strong buy" rating... GUCCI GROUP (NYSE: GUC) added $4 1/4 to $68, although Robertson Stephens cut its rating on the luxury goods manufacturer to "long-term attractive" from "buy."
GOATS
Direct broadcast satellite company ECHOSTAR COMMUNICATIONS CORP. (Nasdaq: DISH) lost another $1 3/4 to $13 5/8 after the company sued NEWS CORP. (NYSE: NWS) seeking to confirm News Corp.'s obligation to loan Echostar $200 million. Earlier this year, News Corp. had agreed to invest $1 billion in the DBS company. Echostar has made a round-trip now from its post-Christmas malaise, when high sell-through expectations weren't met. For one brief week following the announcement of the News Corp. deal, the stock surged, hitting a high of $27 3/4. With the agreement in question, the valuation takes a hit on the absence of News Corp.'s $500 million cash infusion as well as its contribution of ASkyB satellites.
Biotech company CEPHALON INC. (Nasdaq: CEPH) tumbled $7 to $13 after an FDA panel voted not to approve the company's drug for Lou Gehrig's disease. A company spokesperson told Dow Jones today, "We believed we [had] a strong case for approval..." Obviously, the company did believe this, as it bought call options to purchase 2.5 million shares of its own stock. Trading room wags commented that the company should have thought about buying some puts to offset risk for its probably wicked-off shareholders. Cephalon was planning to then issue shares to pay for those options, which built in extra risk for an already risky enterprise selling at more than 10 times sales with only one other drug in the approval process. CHIRON CORP. (Nasdaq: CHIR), which is developing the drug with Cephalon, lost $7/8 to $19 1/8.
QUICK CUTS: Interactive television systems company ALLIN COMMUNICATIONS CORP. (Nasdaq: ALLN) fell $1 3/8 to $4 1/8 after reporting a Q1 loss of $0.50 per share, missing the lone estimate of a loss of $0.36 per share, on revenues of $4.1 million... METROTRANS CORP. (Nasdaq: MTRN) was run over for a $2 1/4 loss to $7 1/2 after the bus manufacturer announced a 13% decline in first quarter revenues and a loss of $0.09 per share, missing the one estimate of $0.16 per share... WELLCARE MANAGEMENT GROUP (Nasdaq: WELL) fell $7/8 to $7 3/8 after the New York State managed healthcare company announced that it will reduce its staff by 15% because of "retroactive and prospective decreases in Medicaid reimbursement rates"... ICN PHARMACEUTICALS (NYSE: ICN) was sedated $2 1/8 to $21 after reporting first quarter EPS of $0.50, below estimates of $0.71, due to reduced sales of its leading drugs as well as foreign currency translation... Ball jar and aerospace company BALL CORP. (NYSE: BLL) dropped $1 3/8 to $26 1/8 on a Morgan Stanley downgrade to "neutral" from "outperform" based on price... Development stage rechargeable battery company BOLDER TECHNOLOGIES (Nasdaq: BOLD) fell $1 5/8 to $12 1/8 on reporting a Q1 loss of $0.18 per share... MEDEVA PLC (NYSE: MDV) lost $1 to $17 3/8 despite reassurances from the British maker of generic Ritalin that prices for the attention deficit disorder drug are firm... HeartMate ventricular-assist device company THERMO CARDIOSYSTEMS (AMEX: TCA) fell $1 1/2 to $24 1/4 after announcing its intention to sell $70 million in convertible debt.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
The More Lasers Change...
Shares of PREMIER LASER SYSTEMS (Nasdaq: PLSIA) vaulted $2 7/8 to $14 today after making a similar jump from $8 3/8 to $11 yesterday. The medical laser manufacturer received Food & Drug Administration (FDA) marketing approval for a laser system designed to replace traditional drilling. Previously, lasers have been cleared only for dental use on soft tissue such as the gums. The erbium YAG laser system was also cleared to toughen tooth enamel, a procedure used to improve bonding of the restoration compound used in filling cavities.
Speaking with Dow Jones yesterday, company Chair Dr. Colette Cozean said she believes 1% of the 100,000 practicing dentists in the U.S. will buy a Premier system in its first year, resulting in $45 million in sales. By the second year of marketing, Dr. Cozean estimates that they will achieve 77% market penetration with sales potentially growing to more than $1 billion per year. Premier Laser Systems booked $1.6 million in sales in its latest fiscal quarter. Although Cozean admitted that dentists typically are slow to adopt new technology, she stated that there has been "a high interest in this product."
The actual laser system itself looks much like a standard dental drill with a cable that connects it to a large console. While treating the cavity, the implement projects a stream of water or air to keep the tooth cool. An FDA spokesperson stated that the laser was reported to be "noisy, but the noise was different from that of a standard drill." The two studies conducted by Premiere Laser indicated that a lower percentage of patients required anesthesia with the laser device and that the treatment was as effective as a high-speed drill in "removing decay and preparing the tooth for a filling."
If lasers working magic in conventional dentistry sounds familiar to readers, it is because it probably is. ION LASER TECHNOLOGY (AMEX: ILT) advanced to $30 7/8 in May of 1996 on prospects for its laser-based tooth-whitening procedure. At the time, analysts and investors were positively ecstatic over the potential for the company selling the units to practicing dentists as well as creating its own chain of tooth-whitening centers. Estimates ranged from $0.50 to $0.76 EPS for this year at the time, but in the first three quarters of this fiscal year the company has only done a measly $0.07 per share in trailing earnings.
Although it is clear in retrospect that Ion Laser's technology worked, the company found the challenges of actually getting dentists to purchase the systems to be much higher than anticipated. Dentists are notorious for being slow adopters of new technology, a habit ingrained by centuries worth of quackery in the profession. As an industrial laser company with a new consumer-oriented device, the initial optimistic assumptions by the company and its supporters proved to be just that -- optimistic. Shares currently trade for a much more reasonable $8 1/8 as the company continues to make decent progress in its core business. Sales in the last quarter were up more than 100% and the company netted $0.02 per share.
Unfortunately for investors, every time the FDA approves a laser-based product, the stock of the related company seems to go nuts and attract all kinds of risk-seeking money. On March 20, 1996, TRIMEDYNE (Nasdaq: TMED) exploded from $3 to as high as $16 when it announced that the company's lasers had been approved to treat benign prostate hyperplasia (BPH), a condition that afflicts about half of all men over the age of 55. A week later the company's OmniPulse laser was approved for ear, nose and throat applications. While it appeared at the time to many investors that the profits from these lasers were a sure bet, today Trimedyne shares huddle at $3 5/16, down substantially from the level where most investors purchased it. VISX INC. (Nasdaq: VISX), which had its excimer lasers approved to treat nearsightedness at the same time, is down from $36 to $23 today.
Ah, but what of the sales potential the Chairwoman of the Premier projects? If the company achieves the $45 million to $770 million sales ramp-up in 12 months, it would be the fastest growth ever recorded for a company with a revenue base of more than $40 million, year-over-year. By comparison, two of the fastest growing companies ever, NETSCAPE COMMUNICATIONS (Nasdaq: NSCP) and IOMEGA (NYSE: IOM), went from $85.4 million to $346.2 million and $326.2 to $1,212.8 million in sales in one year. Whereas two of the fastest growing companies public companies ever managed to increase sales by a factor of four in a year, Premier Laser Systems believes it can increase sales by a factor of 17. Where a company with a $100 million market capitalization would find more resources than Netscape or Iomega is a question investors should be asking themselves.
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Arizona Stock
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Why Arizona? Because, like Delaware, many companies are chartered there, taking advantage of the beneficial business environment. Small, under-followed emerging Arizona growth companies were a terrific place to invest over the past few years and Stephen Barnes, the Editor of "Arizona Stock Analysis," believes this will continue in the future. His strategy of identifying winners before the Street catches on has been most profitable, with his average selection up an annualized 189% through March. Obviously, there can be no assurance that future selections will enjoy the same returns, but Yon believes there is considerable merit to picking up the winners before the Street's analysts pile on. Yon began sharing his views online in the fall of 1995 in the "Folly in Arizona" folder (part of the 50 states boards) and his analysis has led to the publication of the Arizona Stock Analysis, a monthly newsletter available by e-mail or fax. If this piques your interest, check it out at FoolMart, or e-mail SBarnz@aol.com.
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