HEROES
Telecommunications products, electrochemicals, and materials sciences company
RAYCHEM (NYSE: RYC) surged $13 3/8 to $90 1/16 on reporting Q4 EPS
of $1.34, up 28% year-over-year and above estimates of $1.23. Also moving
the stock is a $300 million share buyback authorization and a Merrill Lynch
upgrade to "near-term outperform" from "neutral." Raychem has been a stealth
grower in communications markets, but really popped onto the radar today
as the operating margin for the company busted open, rising 17% to 14.75%
of sales. On a run-rate basis, the company is still selling at less than
125% of sales. With June 1998 EPS estimates of $5.56, one could compare the
company's valuation to something like LUCENT (NYSE: LU) and come away
believing that Raychem is still pretty cheap. Those estimates assume zero
earnings growth, too. Assuming 20% operating earnings growth with minimal
taxes due to its tax loss carryforwards, the company could make $6.50 per
share in 1998 and would be selling at 14 times that number.
Specialty semiconductor company PMC-SIERRA INC. (Nasdaq: PMCS) continues
its comeback, picking up $3 9/16 to $32 1/2 after reporting Q2 EPS of $0.28
on 33% year-over-year revenue growth in its key networking chip business.
Sequentially, the networking semiconductor business made similar gains. Analysts
were expecting Q2 EPS of $0.22. Another comeback case in specialty
semiconductors, CIRRUS LOGIC (Nasdaq: CRUS) added $1 7/8 to $13 3/8
after reporting Q1 revenues of $202 million and EPS of $0.04, which beat
estimates of $0.03. Similar to PMC-Sierra, Cirrus has narrowed its focus,
in this case on controller chips for data storage and digital signal processors.
Looking at March 1999 earnings estimates, it appears that analysts are modeling
in much higher operating margins and modest sales growth or big sales growth
and stagnant margins. Of course, combining higher margins with decent sales
growth would be the preferred course for the company.
Following the completion of a Justice Department investigation of the company,
Merrill Lynch raised its near-term rating on long-term care provider SUN
HEALTHCARE GROUP (NYSE: SHG) to "outperform" from "neutral," sending
that stock $2 higher to $22. Merger partner RETIREMENT CARE ASSOCIATES
(NYS: RCA) rode along for a $7/8 gain to $13 5/16. With a potentially
troubling cloud removed from the picture, some might want to fire up the
spreadsheets and compare the valuations on Sun Healthcare-RCA with the recent
deals that have taken place in the industry. Those include the acquisition
of Integrated Living Communities by a Goldman Sachs partnership; GENESIS
HEALTH VENTURES (NYSE: GHV) tender offer for MULTICARE COMPANIES
(NYSE: MUL); a three-way deal among LIVING CENTERS OF AMERICA (NYSE: LCA), GRANCARE (NYSE: GC), and Apollo Management LP; and a LEHMAN
BROTHERS (NYSE: LEH) investment in ARV ASSISTED LIVING (Nasdaq: ARVI).
Mergers and acquisitions du jour: Oil and gas exploration, production, and distribution company LOUISIANA LAND & EXPLORATION (NYSE: LLX) picked up $7 3/8 to $65 5/8 after striking an agreement to merge with BURLINGTON RESOURCES (NYSE: BR). Louisiana Land shareholders will receive 1.525 shares of Burlington Resources for each of their shares, valuing Louisiana Land north of $70 per share as of last night. Voice mail systems company OCTEL (Nasdaq: OCTL) jumped $3 3/8 to $30 1/8 after agreeing to be acquired by LUCENT TECHNOLOGIES (NYSE: LU) for $1.8 billion in cash, or $31 per share.
QUICK TAKES: Helpdesk software company CLARIFY INC. (Nasdaq: CLFY) rose $3 1/2 to $14 3/8 on reporting a 74% increase in revenues, a larger backlog, and EPS of $0.05, which fell short of the Zacks' mean estimate of $0.08 a share... WOOLWORTH CORP. (NYSE: Z) closed $2 1/2 higher at $27 9/16 after announcing that it will convert 100 of its five-and-dime stores into other of its specialty retail outlets, such as Foot Locker and Champs Sports. Four hundred other of its general retail stores will be closed, for which the company will take a $223 million charge... MIDCOM COMMUNICATIONS (Nasdaq: MCCI) was boosted $1 1/2 to $7 7/16 after Morgan Stanley started coverage of the long-distance company with a "strong buy" rating... TECHNOLOGIES FAIRCHILD (Nasdaq: STCH) added $1 3/4 to $10 5/8 after Standard & Poor's announced yesterday that it put the company's debt rating on "CreditWatch with positive implications"... Construction and property management enterprise software company TIMBERLINE SOFTWARE CORP. (Nasdaq: TMBS) moved up $1 5/8 to $10 on busting out a 70% increase in Q2 EPS... Trucking company MARTEN TRANSPORT (Nasdaq: MRTN) gained $2 3/4 to $17 3/4 on reporting Q2 EPS of $0.63... SINCLAIR BROADCAST GROUP (Nasdaq: SBGI) added $5 to $34 3/4 after the radio and TV broadcasting company announced yesterday that it will acquire for $650 million a number of smaller-market Big 4 television affiliates and a number of radio stations from HERITAGE MEDIA CORP. (NYSE: HTG)... Flash memory storage semiconductor company SANDISK CORP. (Nasdaq: SNDK) gained $3 to $24 1/4 on reporting Q2 EPS of $0.15, beating the mean estimate of $0.09, and rising 7% year-over-year...
MORE TAKES: Real estate management, investment, and services company LASALLE PARTNERS (NYSE: LAP) jumped $5 13/16 from its IPO price of $23 to close at $28 13/16... ACUSON CORP. (NYSE: ACN) was lifted $2 3/16 to $22 3/4 by an Alex. Brown rating upgrade to "strong buy" from "buy"... KINDER MORGAN ENERGY PARTNERS (NYSE: ENP) gained $4 13/16 to $57 1/4 after reporting a 107% increase in second quarter earnings and announcing that it will increase its partnership distributions by 59%... Drug company MERCK & CO INC. (NYSE: MRK) gained $8 1/4 to $106 3/4 on reporting a 20% increase in Q2 revenues of $5.9 billion and EPS of $0.96, beating estimates of $0.95... CHIEFTAIN INTERNATIONAL (AMEX: CID) rose $1 3/4 to $23 5/8 on announcing results of gas exploration in the Gulf of Mexico... Call router manufacturer GEOTEL COMMUNICATIONS CORP. (Nasdaq: GEOC) gained $1 9/16 to $17 on a 96% rise in second quarter revenues and EPS of $0.07, which beat estimates of $0.04 a share... BRITISH STEEL (NYSE: BST) moved $1 11/16 higher to $27 1/4 after announcing that it will step up its share buyback program, which it says will soften the effect of the reduced sales due to the strong British pound... Envelope manufacturer MAIL-WELL INC. (NYSE: MWL) added $1 7/8 to $29 on sealing Q2 EPS of $0.35, beating estimates of $0.31.
GOATS
Specialty chemicals company GREAT LAKES CHEMICALS (NYSE: GLK) started
the day intending to build shareholder value but finished the trading $5
5/8 lower at $48. The company announced that it will spin off its petroleum
additives business, a little honey of a company that generates an EBIT (earnings
before interest and taxes) margin of 38% and requires very little capital
investment. That company, Octel, will borrow $450 million to purchase 10.6%
of its shares held by CHEVRON (NYSE: CHV) and throw $300 million in
cash back at Great Lakes before the spin-off. Great Lakes, which generates
EBIT margins of 12% and manufactures fine chemicals for a number of industries,
will use the proceeds of today's action to increase its share repurchase
authorization by 4 million shares. Problems? Both businesses need to grow
their revenues.
Earnings reports losers today include ASPECT
TELECOMMUNICATIONS (Nasdaq: ASPT), which was crunched for a $6 7/16 loss
to $19 13/16 after the manufacturer of call-center equipment and software
reported earnings of $0.24 per share, up 33% from year-ago results and ahead
of estimates of $0.22 a share. Cutting down the shares was a Goldman Sachs
rating downgrade to "market perform" from "market outperform." Wireless
telecommunications chip maker TRIQUINT SEMICONDUCTOR (Nasdaq: TQNT)
took a beating, too, losing $9 1/8 to finish at $35. The company last night
posted second quarter earnings of $0.25 per share, beating estimates of $0.24
a share. At about five times run-rate revenues and 44 times run-rate earnings
as of yesterday, 23% revenue growth and 14% EPS growth just didn't cut the
mustard, even though sequential growth numbers looked pretty attractive.
More earnings disappointments: Emergency cardiac defibrillator/pacemaker
manufacturer PHYSIO-CONTROL INTERNATIONAL (Nasdaq: PHYS) lost $3 1/2
to $12 1/2 after turning in Q2 revenues of $45 million, but with lower gross
margins, which translated into a 23% decline in EPS of $0.17. Nevertheless,
that met the mean estimate gathered from seven analysts. Disk drive maker
WESTERN DIGITAL (NYSE: WDC) lost $5 7/8 from yesterday's close on
the New York Stock Exchange to close at $39 1/8 after reporting Q4 EPS of
$0.95, in line with the company's estimates but below the mean analysts'
estimate of $0.96 a share. One Foolish wag commented that the analysts missed
estimates while the company made them.
QUICK CUTS: XICOR INC. (Nasdaq: XICO) skidded $1 3/16 to $6 9/16 after the maker of programmable memory devices reported a 34% drop in Q2 EPS, to $0.21... Electronic commerce software company HARBINGER CORP. (Nasdaq: HRBC) fell $4 3/4 to $31 1/4 before reporting earnings of $0.11 a share, beating estimates of $0.10 a share... Enterprise software developer LEGATO SYSTEMS (Nasdaq: LGTO) dropped $2 3/4 to $20 7/8 after reporting Q2 earnings of $0.17 per share, up 31% from year ago levels... Trucking and logistics company CONSOLIDATED FREIGHTWAYS CORP. (Nasdaq: CFWY) fell $2 1/16 to $16 1/8 despite reporting Q2 EPS of $0.30 that rolled over estimates of $0.27... Medical device maker ENDOVASCULAR TECHNOLOGIES (Nasdaq: EVTI) lost $1 1/8 to $10 1/8 on reporting a Q2 loss of $4.7 million, up from $3.2 million last year... Long-haul trucker COVENANT TRANSPORTATION (Nasdaq: CVTI) slumped $1 7/8 to $17 1/4 even though the company was able to achieve higher freight rates, resulting in Q2 EPS of $0.40, beating estimates of $0.25 a share... METROMAIL CORP. (NYSE: ML) tumbled $4 3/8 to $20 after the database and direct marketing concern announced that sales, earnings, and operating cash flow would all come in below expectations in its fiscal second quarter... Cigar maker SWISHER INTERNATIONAL GROUP (NYSE: SWR) was smoked for a $3 3/8 loss to $14 3/8 on reporting 20% revenue growth and EPS of $0.31, missing estimates by a wafer-thin penny per share... RUBBERMAID (NYSE: RBD) lost $3 5/16 to $27 after reporting a 12% increase in sales but operating earnings that fell short of estimates... Test systems manufacturer GENRAD, INC. (NYSE: GEN) lost $2 1/2 to $21 3/4 after reporting a 17% rise in Q2 EPS of $0.28, which beat the single estimate... Sunglasses maker OAKLEY (NYSE: OO) lost $1 1/16 to $12 1/2 after reporting a 41% decline in Q2 EPS of $0.13, which missed estimates... DOLE FOOD (NYSE: DOL) fell $3 5/16 to $40 11/16 after being cut from Goldman Sachs' "recommended list" following its report of Q2 EPS of $1.17, up 11% year-over-year.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
Healthcare Examinations
Just as one major healthcare provider manages to crawl out from under the
cloud of a federal probe, another one has been sucked right back into the
quagmire. SUN HEALTHCARE GROUP (NYSE: SHG) powered ahead $2 to $22
after the Justice Department formally announced that its criminal division
had completed its investigation of the company's billing practices.
Simultaneously, COLUMBIA/HCA (NYSE: COL) tumbled $15/16 to $33 1/4
after falling $4 15/16 yesterday as the feds stepped up their investigation
into the hospital chain's marketing and billing practices. Could the recent
rise of Sun augur the future of Columbia/HCA?
Sun's travails began in June of 1995 when the company revealed in a 10-Q
filing with the Securities Exchange Commission (SEC) that the
Department of Health and Human Services had
called in the Department of Justice to examine billing practices at its
rehabilitation therapy unit. The investigation was prompted by three separate
complaints to a federal investigator in Portland, Oregon. Sun claimed the
whole dispute was just a misunderstanding, but this did not stop the FBI
from raiding a Seattle nursing home in July of 1995 in search of records.
Topping off all of the bad news was a shareholder lawsuit directed at the
company claiming that these legal problems had not been properly disclosed
to investors.
Until the investigation, Sun Healthcare Group had been a momentum stock,
fueling its growth by acquiring smaller competitors in the nursing home and
rehabilitation care arena. The company closed at a high of $28 1/8 in February
of 1995 before Sun began to set, falling as low as $12 1/4 in June when the
investigation was revealed. Piling insult on injury, the discussion of Medicare
reform in Congress put a damper on shares of all of the nursing home providers
and put Sun Healthcare as low as $9 1/8 in October of 1995. Although many
of its nursing home brethren had recovered substantially from their
October-November 1995 lows a year later, Sun was still mired in the $11 to
$13 range it had tread for more than a year.
Contrast Sun's situation with that of the country's largest for-profit hospital
company, COLUMBIA/HCA HEALTHCARE (NYSE: COL). On March 19, Columbia/HCA's
El Paso, Texas operations, along with a number of physicians located in El
Paso, were served federal search warrants for a broad range of records and
documents. Three days later on March 21, FBI agents searched the company's
facilities for a second day. In a
conference call on March
31 designed to assuage shareholder fears, Columbia/HCA stated that although
El Paso is an important market, its revenues represented less than 1.5% of
the company's consolidated results and the market's profitability was slightly
below the corporate average. Unfortunately the call did nothing to mollify
the disturbed shareholders, many of whom were excited by an article that
ran in the New York Times. The stock fell $3 7/8 to $33 5/8.
The New York Times piece raised the additional allegation that
Columbia/HCA had been monkeying with the way it coded Medicare cases as a
way to offer participating physicians, some of whom had ownership stakes
in Columbia/HCA facilities, better reimbursement. In April, the patient referral
issue came alive again when federal agents began to look into whether or
not Columbia/HCA had improperly compensated physicians for referrals to
hospital-owned home healthcare operations. As of yesterday, at least 37 search
warrants had been served in Oklahoma, North Carolina, Utah, Florida, Texas
and Georgia. Olsten Health Management, a wholly owned unit of OLSTEN
CORP. (NYSE: OLS) was also served, as the company manages Columbia/HCA's
home health care operations. Olsten tumbled $1 to $20 5/8 today on the
news.
The warrants issued so far have focused on records relating to two specific
operations at Columbia/HCA: hospital laboratory billing and homecare operations.
Although both of these are important, fast-growing businesses for Columbia/HCA,
they hardly make up the bulk of the company's revenues. Given that the much
ballyhooed Sun Healthcare investigation expired after a year and a half without
any indictments being issued, investors might not want to take the potential
consequences of this investigation quite as seriously as they are. The government
investigation into ARCHER DANIELS-MIDLAND (NYSE: ADM) resulted in
around $100 million in fines for fixing prices in a multi-billion dollar
global market, so should the government come back with an indictment, the
fine will probably not put the company out of business or substantially hamper
profitability.
With the company now trading at 11.3 times its 1998 earnings estimates rather
than the 15 to 16 multiple it has previously commanded due to the fact it
was the largest in the industry, one might argue that the stock offers value
in a market that many claim is devoid of just that. By way of comparison,
number two TENET HEALTHCARE CORP. (NYSE: THC) currently trades at
16.5 times forward earnings estimates in spite of the fact that analysts
are projecting that the two companies will enjoy virtually the same growth
rate over the next year and a half. Before this investigation, Columbia/HCA
last traded at this price level in May of 1995. The last major drop in Columbia
occurred during the great "Healthcare scare," when the shares dropped 40%
in February of 1993. Unless the current investigation outstrips past
investigations by a large margin and puts all 285,000 voting employees of
Columbia/HCA out of work, it is hard to see substantial downside from the
low $30s.
CONFERENCE CALLS
CARLISLE COMPANIES (NYSE: CSL)
(800) 633-8284 code: 2956026
Replay through Friday at 4 p.m.
MICROSOFT (Nasdaq: MSFT)
(800) 456-5304 (code: 1017) -- replay through 7/21
(402) 344-6835 (code: 1017) -- replay for international callers
IOMEGA CORP. (NYSE: IOM)
(800) 633-8284 (code: 2854533) -- replay through 7/21
ASCEND COMMUNICATIONS (Nasdaq: ASND)
(800) 475-6701 (code: 348047) -- replay through 7/25
SUN MICROSYSTEMS (Nasdaq: SUNW)
(800) 633-8284 (reservation # 2689889) -- replay through 7/20
(303) 248-1201 (reservation # 2689889) -- replay for international callers
360 COMMUNICATIONS (NYSE: XO)
(402) 220-3014 -- replay through 7/23
HARLEY-DAVIDSON (NYSE: HDI)
(402) 222-9905 -- replay
ADVANTA CORP. (Nasdaq: ADVNA)
(402) 222-9910 -- replay through 7/17 midnight
APPLIED DIGITAL ACCESS (Nasdaq: ADAX)
(402) 220-6028 -- replay available through 7/25
07/18/97 (Friday)
TRIBUNE (NYSE: TRB)
1-800-633-8284 (code: 2941595) -- replay through 7/25
THIS WEEK'S CONFERENCE CALL SYNOPSES
INNOVEX (Nasdaq: INVX)
Call
APPLE COMPUTER (Nasdaq: AAPL)
Call
SHAW GROUP (NYSE: SGR)
Call
ASCEND (Nasdaq: ASND)
Call
INTEL (Nasdaq: INTC)
Call
SEAGATE (NYSE: SEG)
Call
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