Tuesday, December 30, 1997
DJIA:           7915.97  +123.56       (+1.59%)
S&P 500:         970.84   +17.48       (+1.83%)
Nasdaq:         1565.03   +27.58       (+1.78%)
DJ Transports   3216.22  +100.26       (+3.22%)
30-Year Bond   102 4/32   -22/32   5.97% Yield


Telecommunications billing systems provider International Telecommunication Data Systems (Nasdaq: ITDS) gained $5 1/4 to $29 1/4 after announcing yesterday that it has agreed to acquire for $100 million in cash and ITDS stock the cellular telephone billing unit of Computer Sciences Corp. (NYSE: CSC). With quarterly revenues averaging $10 million last year, the acquired unit adds nicely to International Telecom's revenues, which have averaged about $5.6 million per quarter through nine months of 1997. If the acquired business generates the same sort of pre-tax margins that International Telecom achieved this year, then the new business looks as though it could add about $0.46 to 1999's EPS estimate of $0.83, giving a new EPS number of around $1.29. That takes into account a 10% growth rate for the incremental business, a 10% interest rate on funds borrowed to finance the 90% of the purchase price of the unit, and share issuance of around 417,000 shares.

Department store operator Dayton-Hudson (NYSE: DH) jumped $6 3/8 to $68 3/8 after BT Alex. Brown and Morgan Stanley Dean Witter Discover reiterated their "strong buy" ratings and Prudential Securities reiterated its "buy" rating on the company. While the company had reported right before Christmas that sales were below plan for the first three weeks of December, the fourth week of the month saw excellent late-season shopping trends. That late shopping surge pushed monthly results above plan at the department store division and Mervyn's and in-line with planned increases at Target. Target's fourth December week was "well above plan," while jewelry and women's career apparel sales, among other lines, boosted the month at Mervyn's. For more on company-wide December sales results, the company's Investor Relations sales line is (612) 370-6500.

A number of companies being added to the Nasdaq 100 Index rose today as investors moved to buy in advance of index funds and other portfolios that will have to buy these companies in advance of their inclusion in the index on January 7th. Among the winners from the 11 companies that are being added to the index were Apollo Group (Nasdaq: APOL), up $2 1/2 to $48; Dura Pharmaceuticals (Nasdaq: DURA), up $2 3/8 to $46 1/6; Jacor Communications (Nasdaq: JCOR), up $2 1/4 to $54 3/4; and Citrix Systems (Nasdaq: CTXS), up $2 1/16 to $74 3/4. With 11 new companies coming into the index, one might be moved to pick which laggards might be bounced from the Nasdaq's most selective broad-based index. Possible dropouts include Informix (Nasdaq: IFMX), Sybase (Nasdaq: SYBS), Boston Chicken (Nasdaq: BOST), and PETsMART (Nasdaq: PETM). One fairly certain bounce candidate is Micron Electronics (Nasdaq: MUEI), as the Nasdaq 100 is hardly hurting for companies making PCs, PC components, and providing contract manufacturing.

Credit card issuer Providian Financial (NYSE: PVN) rose $3 13/16 to $46 1/16 on announcing that it has purchased $1.1 billion in unsecured credit card receivables from super-regional bank First Union Corp. (NYSE: FTU). Providian said the addition to its managed receivables portfolio will be accretive to 1998 EPS and will help the company surpass its yearly EPS growth goal of 22% to 25%. The mean First Call earnings estimate for 1998 looks for EPS growth of 24%. Among credit card issuers, Providian's return for the second half of the year coming into today was the highest. Counting dividends reinvested in the stocks, here's the run-down on the second half of 1997, as of December 29:

48.6% Providian Financial (NYSE: PVN)
42.6% Capital One Financial (NYSE: COF)
18.5% Synovus Financial (NYSE: SNV)
15.1% Beneficial Corp. (NYSE: BNL)
9.1% Household Financial (NYSE: HI)
8.9% MBNA Corp. (NYSE: KRB)
3.4% Citicorp (NYSE: CCI)
0.63% Metris Cos. (Nasdaq: MTRS)

Several retailers rose today on reports of solid sales leading up to Christmas and a number of analyst upgrades. Family Dollar (NYSE: FDO) added $1 15/16 to $28 1/2 as the discount retailer was reiterated a "buy" at Prudential Securities. Stage Stores (Nasdaq: STGE) jumped $4 1/8 to $36 3/4 after the clothing retailer was upgraded to "strong buy" by Stacy Pak at Credit Suisse First Boston, its second upgrade in two days. Musicland Stores (NYSE: MLG) rose $3/4 to $7 3/8 on continued optimism about the music retailer's ongoing turnaround. CompUSA (NYSE: CPU) jumped $3 5/16 to $29 5/8 on word that computer sales were solid over Christmas week. JC Penney (NYSE: JCP) was up $3 1/8 to $60 1/2; closeout retailer Consolidated Stores (NYSE: CNS) rose $2 13/16 to $44 after taking a beating last week; and drugstore operator CVS (NYSE: CVS) added $4 5/16 to $65 1/2.

News that privately held United Parcel Service (UPS) was going to hike its rates had shares of air freight companies doing a dance today. Federal Express (Nasdaq: FDX) jumped $3 7/16 to $60 13/16 while merger partner Caliber Systems (NYSE: CBB) was pulled along for $2 1/2 to $48. Airborne Freight (NYSE: ABF), FedEx's biggest competitor, also flew up $6 5/8 to $62 5/16. With UPS raising rates so soon after a disastrous strike that was the big business story of the year before the Asian miracle blew up, it is even more unlikely that much of the business that went to competitors will come back. Investors are hoping that FedEx's new RPS business-to-business non-express package service it will acquire from Caliber will take a lot of high-margin UPS business away. Short- to medium-haul trucker Knight Transportation (Nasdaq: KNGT) was also up $5 5/16 to $29 5/16, as was international shipper Expeditors International (Nasdaq: EXPD), climbing $2 1/4 to $38.

QUICK TAKES: Capital One Financial (NYSE: COF) rose $1 9/16 to $53 7/8 and Concord EFS (Nasdaq: CEFT) gained $2 1/8 to $26 3/8, possibly still pricing in information released prior to Christmas about how quarterly earnings would meet or beat expectations... NL Industries (NYSE: NL) popped up $1 1/16 to $13 5/8 after the specialty chemical company said it was selling its Rheox unit to UK-based Harrisons & Crosfield Plc for $465 million in cold, hard cash, or about $9 per share... Patterson Energy (Nasdaq: PTEN) rose $5 1/8 to $38 after the company announced a 2-for-1 stock split and Raymond James reiterated a "buy" on the shares. Analyst Marshall Adkins put a 12-month target price of $60 per share on the oil driller because of its recent acquisition of Robertson Offshore and additions to its fleet of rigs.

Innocence by association is why Platinum Technology (Nasdaq: PLAT) jumped $4 5/32 to $28 5/32 after announcing that Intel (Nasdaq: INTC) would license one of its software products to Platinum, fund its development, and buy an undisclosed number of non-voting shares in the company... STARTEC Global Communications (Nasdaq: STGC) added $1 3/8 to $22 1/8 after Investor's Business Daily profiled the company, stressing that it hopes to benefit from global telecom deregulation... DII Group (Nasdaq: DIIG) climbed $1 3/4 to $26 3/4 after the semiconductor manufacturer and electronics contract manufacturer was initiated as a "buy" by David Foropoulos at Hilliard Lyons... America Online (NYSE: AOL) added $1 11/16 to $88 5/16 on announcing another exclusive marketing agreement, this time with cymbermeals, which will be the "exclusive aggregator of restaurants offering online ordering for takeout and delivery meals on AOL and AOL.com."

SuburbFed Financial Corp. (Nasdaq: SFSB) gained $13 3/4 to $47 1/2 after agreeing to merge with Citizens Financial Services for $36 per share in Citizens stock, based on Citizens' proposed initial public offering price... American Airlines parent AMR Corp. (NYSE: AMR) added $5 1/16 to $125 11/16 after a Federal Court judge dismissed a US Airways (NYSE: U) antitrust complaint brought against AMR and British Airways (NYSE: BAB) over a transatlantic alliance... Community First Banking Co. (Nasdaq: CFBC) moved up $3 19/32 to $44 1/2 after the Georgia bank said it expects to report year-end EPS of about $0.73 before charges associated with the conversion of its Carrollton Federal Bank to a commercial bank, the closing of two branches, and for year 2000 remediation expenses. The company's board also authorized a 600,000 share buyback over the coming three years.

Sungard Data Systems (NYSE: SDS) gained $1 13/16 to $30 3/8 after the maker of financial markets software and provider of data backup services announced that Japan's Sumitomo Trust & Banking Corp. has licensed its Panorama global risk management software. Some wags might suggest that risk management software sales might be picking up on the western side of the Pacific Rim... First Data Corp. (NYSE: FDC) rose $3 7/16 to $30 1/4 as investors realize that the holiday retail season was a good one for this processor of merchant credit transactions... Aerospace fasteners and engine parts manufacturer and distributor Fairchild Corp. (NYSE: FA) added $2 7/16 to $24 9/16 after announcing yesterday that it is calling three bond issues: its 12% 2001 debentures, 13% 2007 debentures, and 13 1/8% 2006 debentures... RMI Titanium (NYSE: RTI), a supplier of titanium parts to the aerospace industry also has a good day, gaining $1 9/16 to $20 5/16... Southern California bank FP Bancorp (Nasdaq: FPBN) jumped $4 7/8 to $28 1/4 after agreeing to merge with Utah-based Zions Bancorporation (Nasdaq: ZION) in a stock swap valuing each share of FP at 0.627 shares of Zions, or $27.27 as of last night's close.


Electronics design automation software company Synopsys Inc. (Nasdaq: SNPS) fell $2 11/32 to $37 1/8 after advising analysts (apparently hoping that the news will somehow trickle down to their individual and otherwise non-institutional investors) that it thinks Q1 EPS estimates of $0.43 are too high. According to Reuters, SoundView lowered its rating to "short-term hold" from "short-term buy" after the company said it "...moved some Viewlogic [an acquired company] revenues into backlog and managed the sales force transition." Essentially, the acquisition of ViewLogic is pushing earnings and revenues later into the year and overloading second half expectations. Cowen & Co. reiterated its "strong buy" rating on the shares this morning as Synopsys assured analysts that it believes the acquisition will be accretive to full-year per-share earnings.

Medical device manufacturer Rochester Medical Corp. (Nasdaq: ROCM) lost $1 3/8 to $12 3/8 after announcing that it sees first quarter sales growth of up to 7%. Unfortunately, the projected revenues for the quarter represent up to a 15% decline from last quarter's revenues of $2.12 million. The maker of urology devices said the ConvaTec division of Bristol-Myers Squibb (NYSE: BMY), which distributes Rochester's products, reported that it is working down inventories. Since ConvaTec earlier this month announced a management reorganization and restructuring, Rochester Medical might be suffering from new management at its distribution partner wanting to turn inventories faster. That would suggest that the current quarter's sales shortfall is merely a transitory phenomenon. The company concluded its discussion of the ConvaTec issue with the statement that Rochester Medical and "...ConvaTec are currently in discussions regarding their strategic relationship, including future sales trends and distribution activities for the Company's products," which could mean a lot of things in the mind of a nervous shareholder.

More than a few thinly traded banks are getting killed today. Although there is no specific news on these savings institutions, it is well known that some short-term-oriented money managers plunged into these relatively stable companies during the market turmoil of the last few weeks. As a result, when those managers liquidate the positions to buy other stocks, these companies are suddenly hit with a bunch of down volume that they are not able to take. Washington Trust (Nasdaq: WASH) tumbled $1 3/4 to $34, Fidelity Bankshares (Nasdaq: FFFL) slumped $1 1/4 to $30 3/4, and American Bancorp Ohio (Nasdaq: AMBC) was off $2 1/2 to $28.

QUICK CUTS: Cadus Pharmaceutical (Nasdaq: KDUS) tumbled $7/8 to $7 after Chairman and Chief Executive Jeremy Levin called it quits in order to pursue "other interests." Investors apparently are concerned that things are not going well at Cadus, as Paul Kelly of Volpe, Brown & Whelan downgraded the shares to "neutral" on the news... Trimble Navigation (Nasdaq: TRMB) dropped $2 1/2 to $21 3/4 after Schroder downgraded shares of the company to "neutral"... O'Reilly Automotive (Nasdaq: ORLY) dropped $1 1/16 to $26 15/16 after Harry Katica of Prudential Securities downgraded the auto parts retailer to "hold."

Concord Camera (Nasdaq: LENS) slipped $1 1/32 to $3 1/16 after the camera manufacturer said it will sue Fuji Photo Film. Fuji wants to end a previous agreement that grants a non-exclusive license for Fuji technology to Concord because Concord has allegedly violated geographical restrictions... Computer Motion (Nasdaq: RBOT) gave back $1 9/16 to $10 1/4 after surging yesterday on news that the Food & Drug Administration had granted approval for the company's surgeon controlled robotic arm... Exabyte (Nasdaq: EXBT) continued its downward slide, falling $3/8 to $6 7/16 after the tape storage provider announced that it would report a loss in the fourth quarter of between 70 and 80 cents per share and that it was exiting the mini-cartridge market.

An Investment Opinion
by Jim Surowiecki

Seinfeld's Wake-Up Call

In the normal course of events, last Friday's announcement that this will be the last season of Seinfeld, the nation's most popular TV comedy, would have led to the immediate pummeling of the company that depends on Seinfeld for so much of its revenue. Instead, shares of General Electric (NYSE: GE), which owns NBC, dropped a mere quarter of a point. Nonetheless, the announcement did send shock waves through the network-television establishment, and was taken by many as but the latest in a recent string of batterings that once-mighty NBC, ABC, and CBS have taken at the hands of recalcitrant production companies and bored viewers. The irony of this so-called Media Age, after all, is that media companies are neither as large nor as powerful as we imagine them to be, and profits are harder to come by than all the hype about the information economy would suggest.

To take first things first, the reason the Seinfeld announcement had a negligible impact on GE's stock price is that NBC, which is the most successful of all the major networks, still accounts for just 5% of GE's revenue and earnings. The sheer size of the profit machine Jack Welch has built is such that NBC functions as a small, but important, division of the diversified conglomerate. And while Seinfeld's disappearance will hardly be welcomed by GE investors, especially given that the show generated $200 million in operating profit for the network every year and allowed NBC to charge $500,000 for a 30-second ad spot, in the context of GE's overall company picture this is but a small blip.

Imagine how different the market's reaction would have been had NBC been an independent, publicly traded company, and you get some sense of how massive GE -- with its market cap of $230 billion -- really is. And in a broader sense, the episode should remind us of how small media companies are compared to the U.S. economy as a whole. If you take all the major U.S. media conglomerates, for instance, their annual sales come to just slightly less than three-fourths of the annual sales of General Motors (NYSE: GM) alone. In other words, most of the real work of the American economy has nothing to do with the airwaves.

At the same time, Seinfeld's disappearance is important because it represents yet another blow to the networks' quest for large-scale audiences. Like E.R., Seinfeld has been one of the few programs that has been able to draw large audiences consistently, and one of the few programs that has been able to lure people back to network television. That's not a minor feat at a time when the combined ratings for the four major networks recently slipped below 50% of the TV-watching audience, and when CBS, NBC, and ABC have watched their ratings slip by a third over the past decade. Besides tearing a massive hole in the heart of NBC's Thursday night lineup -- a hole that will become an abyss if NBC fails to win the bidding war for E.R. -- Seinfeld's departure will also contribute to the further fragmentation of the television audience, since whatever replaces it is unlikely to achieve the iconic status Seinfeld now enjoys.

The news comes at a curious moment in NBC's history, when the network is simultaneously enjoying record free cash flow of more than $1 billion and confronting a future that could be very bleak. Unlike Fox, owned by News Corp. (NYSE: NWS), and ABC, owned by Disney (NYSE: DIS), NBC has missed the biggest opportunity for profits in the television business, namely the syndication of monster hits. While Fox has turned The X-Files and The Simpsons, both of which it owns, into cash cows through syndication and merchandising, and while Disney has been able to produce shows for ABC and use the network to promote its other businesses, NBC owns none of its hit shows, and the shows it does own have been mediocre flops. Since the middle of this decade, for the first time, the networks have been able to be both producers and distributors of programming. But NBC has not reaped the benefits of that transformation as others have.

Despite all the doom-saying, it remains true that the networks offer advertisers a unique ability to reach massive numbers of viewers, which is why ad rates have stayed stable and even risen as viewership has dropped. A recent article in Fortune suggested that for the cost of one 30-second spot on the CBS news program Public Eye, an advertiser could buy 18 spots on CNN and actually reach a larger number of viewers. But, of course, running 18 different spots means that you're probably reaching many viewers more than once, while running one spot ensures that you're reaching 10 million different people. And only the networks can provide that kind of guarantee.

Because of cross-ownership and the growing diversification of companies like Disney and News Corp., let alone GE, it's difficult to separate out network television and value it as a business. Still, TV is not going away, and the networks seem to be beginning to think harder about how to leverage their brand names and how to transform themselves into product platforms rather than mere content distributors. For GE investors, the Seinfeld' announcement may have meant very little, but for the networks as a whole, it should be the latest in a long series of wake-up calls. Perhaps this time the snooze button won't work.


Please see the Motley Fool's Conference Calls page for call information and links to synopses.

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