Monday, December 8, 1997
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An Investment Opinion by Dale Wettlaufer

Input/Output Impresses

Input/Output Inc. (NYSE: IO), a maker of seismic data acquisition equipment, gained $1 5/16 to $30 1/8 after reporting Q2 EPS of $0.34, well ahead of the mean analyst estimate of $0.25. Since missing a string of EPS estimates in fiscal 1997 due to price competition and product lags, Input/Output has come back strongly in the last two quarters. Its stock price jumped over $30 the week it reported first quarter EPS of $0.26, but one quarter later it is stalling out at that level -- even though the company reported a 25% sequential increase in revenues and a 31% sequential rise in per-share earnings.

Although the company's earnings report lacked detail on the progress of its new SYSTEM THREE seismic system as well as what other types of systems it moved during the quarter, unit volume gained 20% sequentially, indicating that average selling prices increased during the quarter. Due to strong exploration, drilling, and offshore construction activity from the likes of Western Atlas (NYSE: WAI) and Global Industries (Nasdaq: GLBL), demand for equipment such as Input/Output's seismic data acquisition streamers and hydrophones for reservoir modeling showed strong acceleration from first quarter levels. In addition, decreasing prices for digital signal processors and other electronics equipment allows the company to lower prices, stimulating marginal demand for its products while maintaining profit margins.

Few analysts in the sector foresee exploration activity abating in the near future. While one doesn't have to subscribe to the 20-year up cycle theory that some think must exist for oil drillers and exploration & production companies to sustain their current valuations, over the next five years at least, decreasing costs for finding and extracting oil mesh nicely with global demand growth to create increasing earnings. [For an overview of what's driving the oil services sector, listen to the Fool's interview with Bo McKenzie, Schlumberger alumnus and Managing Director of Jefferies and Co. on our Real Audio weekly program (StockTalk)]. Since Input/Output's equipment decreases the total costs of finding oil and also decreases the percentage of dry holes hit by drillers, its revenues will grow with the oil exploration cycle as long as it can keep ahead of the product curve. Microeconomically, it's a compelling story. For more research on how well the company is keeping ahead of the curve, investors would serve themselves well by calling the company.


Angeles Participating Mortgage Trust (AMEX: APT) gained $1 to $5 5/16 after it announced that Starwood Capital, a subsidiary of Starwood Lodging (NYSE: HOT), is buying the rest of the real estate company that it doesn't already own in an exchange of $1 billion in assets for 300 million Angeles shares, as well as $300 million in cash.

Andrea Electronics Corp. (AMEX: AND) moved $1 7/8 higher to $20 15/16 after it announced a joint marketing and licensing agreement with Lernout & Hauspie Speech Products (Nasdaq: LHSPF). The terms of the agreement allow L&H to bundle various Andrea anti-noise products with its continuous speech recognition software products in addition to reselling the products through its direct sales group.

First Aviation Services (Nasdaq: FAVS), a provider of maintenance services and parts to aircraft operators, soared $1 7/16 to $7 1/2 after the company reported Q3 EPS of $0.18 late in the day on Friday (posting three consecutive quarters of record revenues and earnings) versus estimates for $0.19. The company's CEO announced that, "Acquisitions at appropriate value levels are an important part of our plans for future growth."

CMG Information Services (Nasdaq: CMGI), an Internet venture capital firm, gained $4 5/8 to $28 1/2 after chip maker Intel Corp. (Nasdaq: INTC) announced that it agreed to purchase a 4.9% ownership interest in the firm.

Coverage on Petroglyph Energy (Nasdaq: PGEI) was initiated by CIBC Oppenheimer with a "strong buy" rating, which boosted shares of the explorer and developer of oil and natural gas reserves by $3/4 to $10 1/2.

Deposit Guaranty Corp. (NYSE: DEP) shot $5 9/16 higher to $57 15/16 after First American Bank (Nasdaq: FATN) agreed to acquire the company for $2.7 billion in stock, or $64.06 per share. The combination creates the fourth largest bank in the Mid-South. First American dropped $4 1/8 to $50 5/8 on the news.

Trans World Airlines (NYSE: TWA) rose $11/16 to $11 5/8 after it was upgraded by BT Alex. Brown to "buy" from "neutral." This move comes amidst public hearings this week probing last year's midair explosion of Flight 800, and closure on the matter seems imminent.

Information technology company Primark Corp. (NYSE: PMK) rose $2 3/8 to $38 1/8 after announcing that it had executed an agreement with Litton Industries (NYSE: LIT) to sell its TASC Inc. subsidiary for $432 million in cash.

Sepracor Inc. (Nasdaq: SEPR) gained $2 1/8 to $41after announcing that it had given Schering-Plough Corp. (NYSE: SGP) exclusive worldwide rights to Sepracor's patents covering descarboethoxyloratadine (DCL), an active agent in some antihistamines.

Shares of USWeb (Nasdaq: USWB) continued to rise, gaining $1 3/4 to $11 3/4 this morning after the company's initial public offering on Friday. The company helps businesses deploy Internet software and develop sites on the Web. The gain comes after the company's initial pricing of $7.50 fell way below its expected range of $9 to $11.


Standard & Poor's lowered its senior unsecured debt and corporate credit ratings on sewing machine maker The Singer Co. (NYSE: SEW) to "double-B" from "double-B-plus." S&P stated that the "downgrade reflects continuing poor profitability and cash flow generation and little prospects for improvements near term." Singer shares slipped $7/8 to $13 1/2.

Alliance Pharmaceutical Corp. (Nasdaq: ALLP) fell $1 11/16 to $7 5/16 after Hoechst Marion Roussel Inc. (the U.S. pharmaceutical subsidiary of Hoechst Marion Roussel AG) terminated a worldwide licensing agreement with Alliance for LiquiVent (perflubron), a potential treatment for acute respiratory distress syndrome.

IONA Technologies (Nasdaq: IONAY) dropped $2 3/8 to $18 1/4 after announcing that Australia's international resources powerhouse, BHP Information Technology, has deployed IONA Technologies' object development tool, "Orbix," as part of BHP's "Computer Integrated Manufacturing (CIM) environment."

Independent energy E&P Brigham Exploration Co. (Nasdaq: BEXP) gained $1 9/16 to $14 1/2 this morning after announcing on Friday that it had closed on the acquisition of 93,000 net acres of property by exercising a 30-month "seismic option" in northern Willacy County, Texas. The company is planning a 200 square mile 3-D exploration program to begin in early 1998.

Entertainment software company MicroProse Inc. (Nasdaq: MPRS) fell $2 7/16 to $2 1/4 this morning after stating on Friday that it and GT Interactive Software Corp. (Nasdaq: GTIS) had terminated their previously announced agreement to merge.

Conseco (NYSE: CNC), a financial services company offering health and life insurance as well as retirement annuities, dropped $2 to $43 1/2 on negative comments from Ray Dirks in this weekend's Barron's. The company responded this morning.


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