FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo

EDS Rightsized

ELECTRONIC DATA SYSTEMS (NYSE: EDS) tumbled $9 3/8 to $32 5/8 after the company reported that first quarter earnings per share (EPS) declined 11% year-over-year. EDS reported $0.40 EPS on $3.6 billion in revenues, a 6.7% increase from year ago levels. The earnings number disappointed consensus estimates, which had pegged first quarter profits at $0.48 EPS. Operating margins dropped from 10.7% to to 9.1%, explaining much of the shortfall. Not to worry, though. The company's own management consulting subsidiary, A.T. Kearney, has crafted a plan that will "set the stage for sustained growth going forward as well as enhance EDS' ability to reach its 1997 earnings target." EDS still thinks it can produce EPS of $2.30 to $2.35, less a charge in the second quarter, in line with current consensus estimates of $2.36 per share

EDS has been disappointing investors since October 23, 1996, when shares dropped more than $11 in one day after the company warned that its fiscal fourth quarter would be disappointing due to slow growth in new business, Department of Defense cutbacks due to overspending on the Bosnia mission, and new business from former parent GENERAL MOTORS (NYSE: GM) slacking off. Problems in growth began almost immediately after the consulting company finally separated completely from General Motors, making the divestiture a pretty savvy move in retrospect. Once viewed as a thoroughbred growth company in the computer services segment, investors are increasingly distancing themselves from a flagging EDS.

Although many initially saw the problem as EDS simply shifting from being a 15% to 20% grower to a 10% to 15% grower, it appears the problem is a little more complicated. While competitor COMPUTER SCIENCES CORP. (NYSE: CSC) is down $3 1/4 to $61 1/2 on today's EDS news, the fact that EDS has been having problems does not seem to be impacting the company. Last quarter Computer Sciences grew revenue by 14.9% compared to 10.6% for EDS. None of this seems to have affected the computer services arm of IBM (NYSE: IBM), either. In its most recently reported quarter, IBM's revenues from services grew 28.1%, while the gross profit margin for that business improved 0.1%. Whatever is ailing EDS has definitely not shown symptoms that it is contagious yet.

UPS

BELL ATLANTIC CORP. (NYSE: BEL), up $3 7/8 to $62 1/2, and NYNEX (NYSE: NYN), up $ 3 3/8 to $47 3/4, both made strong moves this morning on news that the Department of Justice will not stand in the way of the proposed merger of the two Baby Bells.

Data storage systems company SAND TECHNOLOGY SYSTEMS INTERNATIONAL (Nasdaq: SNDCF) rose $1 7/16 to $7 11/16 after releasing beta test code for its "Nucleus parallel server option."

WET SEAL INC. (Nasdaq: WTSLA) gained $2 1/2 to $21 5/8 after the young-women's clothing retailer pre-announced Q1 earnings per share (EPS) of $0.23, much higher than estimates of $0.12, on better-than-expected same-store sales increases.

Wireless communications products company QUALCOMM INC. (Nasdaq: QCOM) added $3 7/16 to $46 7/16 after a court lifted a restraining order requested by MOTOROLA (NYSE: MOT) that alleged that Qualcomm's Q-Phone is "strikingly similar" to the patented design of Motorola's StarTac phone.

VISX INC. (Nasdaq: VISX) rose $1 3/4 to $22 1/2 after the FDA approved the company's excimer laser for use in the treatment of astigmatism, a common vision problem.

Outerware company NORTH FACE INC. (Nasdaq: TNFI) moved up $1 to $14 3/4 after reporting a 27% increase in Q1 sales, to $39.3 million, and EPS of $0.02, beating estimates.

ADAC LABORATORIES (Nasdaq: ADAC) rose $2 7/8 to $19 7/8 after announcing favorable results in a multi-center test of its product meant to diagnose coronary artery disease.

Electronics contract manufacturer DII GROUP (Nasdaq: DIIG) was boosted $1 1/2 to $28 3/4 on an Alex. Brown rating upgrade to "strong buy" from "buy."

NATIONAL INSURANCE GROUP (Nasdaq: NAIG) gained $1 5/8 to $8 3/4 after the insurance services and software company reported Q1 EPS of $0.20 on a 68% increase in revenues. The company also declared a $1.08 per share special dividend.

Shipping company CONSOLIDATED FREIGHTWAYS (NYSE: CNF) moved up $1 3/4 to $30 3/4 after its Emery airfreight business was awarded a $1.7 billion, five year contract with the U.S. Postal Service.

DOWNS

Application development software company FORTE SOFTWARE (Nasdaq: FRTE) fell $7 7/8 to $8 3/4 after reporting Q4 EPS of $0.14, which beat estimates, but the company was cut to "neutral" from "outperform" by Morgan Stanley.

USA DETERGENTS (Nasdaq: USAD) had its clock cleaned, losing $5 1/8 to $13 1/4 after the household products company announced yesterday that it didn't know if it would be profitable in its first quarter. Analysts had been expecting EPS of $0.15 to $0.17.

Sub-prime auto lender CREDIT ACCEPTANCE CORP. (Nasdaq: CACC) lost $4 9/16 to $10 3/16 after reporting Q1 EPS of $0.26, in line with estimates. Reserves for credit losses increased 159% year-over-year, while gross outstanding installment contracts increased by 53%.

NORTHLAND CRANBERRIES (Nasdaq: CBRYA) was squashed $2 11/16 to $11 3/4 after the berry grower said talks to acquire a juice bottler had broken off abruptly and that 1997 earnings will be lower than expected due to planning made in expectation of a successful acquisition.

Carpet Max franchisor MAXIM GROUP (Nasdaq: MAXM) fell $2 1/8 to $8 7/8 after it said Q1 earnings will come in $0.03 to $0.04 lower than analysts' expectations of $0.22 per share.

AMERICAN POWER CONVERSION (Nasdaq: APCC) fell $2 7/8 to $15 3/4 after the uninterruptable power supply company reported Q1 EPS of $0.22, in line with estimates. Revenue growth of 21% may have left some analysts unimpressed.

Digital video chip company ZORAN CORP. (Nasdaq: ZRAN) slipped $2 3/8 to $13 1/2 after reporting Q1 EPS of $0.06, which beat estimates but was flat year-over-year.

GUARANTEE LIFE COMPANIES (Nasdaq: GUAR) fell $2 1/4 to $18 after the group life and health insurance company reported Q1 EPS from continuing operations of $0.31 (excluding a gain), missing estimates of $0.38.

Direct PC seller GATEWAY 2000 (Nasdaq: GATE) lost $3 7/8 to $54 1/2 after reporting Q1 EPS of $0.86, right at estimates. Revenues grew 24% year-over-year while unit shipments vaulted 39% year-over-year.

STORAGE TECHNOLOGY (NYSE: STK) fell $4 1/4 to $34 1/2 after the storage systems company reported Q1 EPS of $0.64, up 33% year-over-year and above estimates of $0.62.

CONFERENCE CALLS


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THIS WEEK'S CONFERENCE CALL SYNOPSES

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FOOL PORTFOLIO STOCKS
FOOL PORTFOLIO

ATCT down $3/16 at $4 1/8 AOL up $1/2 at $43 1/4 CHV down $7/8 at $65 3/8 COMS down $7/8 at $27 3/4
DJT up $1/4 at $8 3/4 GM down $1/4 $55 1/4 IOM down $1/4 at $16 3/8 KLAC down $1 1/16 at $42 3/8 LU down $7/8 at $55 1/8 MMM down $5/8 at $85 1/2 T up $1/2 at $31 1/4