Wednesday, December 30, 1998
DJIA 9292.91 -28.07 (-0.30%) S&P 500 1235.97 -5.84 (-0.47%) Nasdaq 2172.83 -8.94 (-0.41%) Value Line Index 906.69 +1.10 (+0.12%) 30-Year Bond 102 16/32 +5/32 5.09% Yield

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An Investment Opinion
by Warren Gump

Apria Insiders Buying

Today's Wall Street Journal noted that there has been some major insider buying at Apria Healthcare Group (NYSE: AHG) over the past two months. Between October 26 and November 30, eight executives purchased 1.8 million shares at prices ranging from $3.44 to $6.75. Included in those purchases was a 1.7 million share purchase by Relational Investors LLC, an investment firm where Apria Chairman Ralph Whitworth is a managing member. This brings Relational's stake in the company up to over 13% of the company, or 6.8 million shares. Massive insider buying is often a very positive sign for companies that are struggling to turn themselves around.

There is no doubt that investors would like to see encouraging news from Apria. The stock hit its 52-week high in February of this year at $14 1/8, down substantially from its $40 pinnacle in July 1995. This past October the stock fell to $2 9/16 before it bounced back to $8 3/8 at midday today. What went wrong? Lower reimbursement rates from the government and insurance companies squeezed revenues and profitability for this leader in providing home healthcare services such as respiratory therapy.

Last year, operating profits plunged 50% to $0.79 per share. This year, the First Call estimate for the company is an operating loss of $0.49 per share. These figures exclude massive write-offs for restructuring and reorganization taken in both 1997 and 1998. In addition, the government has requested documents to support the company's billings to Medicare and Medicaid. In an SEC filing, the company indicated that there were "errors and deficiencies" related to some billings that could potentially lead to "highly material" civil and/or criminal claims.

In the midst of these troubles, Apria has kicked out most of its old management team and has brought in a new Chairman, CEO, and CFO. This management team has downsized the company by eliminating unprofitable branching and focusing on the more profitable respiratory therapy and home medical equipment product lines. The company is also in the midst of shoring up its finances with a rights offering of $50 million in convertible subordinated debentures.

There can be no assurances that Apria will be successful in reviving itself. Wall Street analysts are holding out hope, though, with First Call showing a consensus earnings estimate of $0.22 per share in 1999. One analyst has gone out on a limb to speculate that the company can earn $0.70 per share in 2000. It is very hard to determine when a turnaround is going to be successful. I feel much better about making such a bet, however, when senior management is placing its money on the table along with mine.


Internet-based telecommunications services firm Tel-Save.com (Nasdaq: TALK) gained $2 1/16 to $17 1/4 after signing a 25-year guaranteed customer agreement with AT&T (NYSE: T). As part of the deal, AT&T will allow Tel-Save to purchase an unlimited amount of broadband fiber capacity over the next 12 months. Tel-Save believes the agreement will allow the company to operate with "the lowest network cost structure in the industry."

Online financial market data and research services provider Track Data Corp. (Nasdaq: TRAC) made tracks and climbed $5 1/8 to $8 15/16 after saying it will provide the 35,000 registered users of its myTrack Internet market quotation and news service with online trading services through broker-dealer Track Securities Corp. before the end of the first quarter.

Corporate travel management services company Navigant International (Nasdaq: FLYR) took flight and rose $13/16 to $8 5/8 after saying it will centralize the online presence of its various operating companies into a single website in the first quarter of 1999. "The Internet has always been part of our business plan," Navigant CFO Robert Griffith assured investors who may have been worrying that the company was missing out on the e-commerce biz.

Networking products and switch designer FORE Systems (Nasdaq: FORE) teed up a $1 1/4 gain to $17 1/18 after Credit Suisse First Boston said it expects the company to hit the First Call mean earnings estimate of $0.10 per share for Q3, despite concerns to the contrary from other analysts yesterday. The brokerage firm blamed FORE's 15% drop yesterday in part on an earnings warning from smaller rival Network Equipment Technologies (NYSE: NWK), which fell another $1/4 to $10 15/16 this morning.

Internet search and caching software developer Inktomi (Nasdaq: INKT) gained $8 3/4 to $135 3/4 after announcing a two-for-one stock split payable on or around Jan. 27.

Specialty retailer Genesis Direct (Nasdaq: GEND) jumped $5 1/8 to $12 3/16 after signing an e-commerce agreement with portal company Excite (Nasdaq: XCIT). Under the deal, Excite will help sell 20 of Genesis Direct's catalog brands, including athletic apparel, travel merchandise, tin toys, and rock and TV memorabilia.

Casual and golf apparel marketer Hartmarx Corp. (NYSE: HMX) moved up $1 3/16 to $5 11/16 after announcing a 1.5 million share repurchase plan. Elsewhere on the stock buyback front, oil and gas exploration firm HS Resources (NYSE: HSE) doubled the size of its previously announced repurchase plan to $10 million, sending the company's shares up $1 to $7 13/16.

Financial services software maker Interlinq Software (Nasdaq: INLQ) pieced together a $3/4 gain to $8 1/2 after announcing a plan to take the company private. Late yesterday, Interlinq offered to buy back all but 1.25 million of its shares for $9 1/4 a pop in cash, which works out to a 19% premium over its closing price yesterday of $7 3/4 per share. For more details on the transaction, please see this morning's Breakfast With the Fool.

Smart card systems developer PubliCARD Inc. (Nasdaq: CARD) dealt its shareholders a $1 gain to $14 1/8 after agreeing to buy privately held PC card designer Greystone Peripherals Inc. for undisclosed terms.

Israeli multimedia educational software developer Edusoft Ltd. (Nasdaq: EDUSF) picked up $1 1/2 to $7 3/4 after announcing that its board of directors has agreed to sell the company to an unspecified foreign buyer for about $40.2 million, or $8.50 per share. Edusoft's board controls 60% of the company's outstanding shares, according to the firm.


British Petroleum's (NYSE: BP) American depositary shares slumped $3 7/8 to $86 1/16 while Amoco (NYSE: AN) retreated $1 3/8 to $56 5/8 after the FTC approved the companies' $57.1 billion merger. The pair offered to sell 134 gas stations and nine light petroleum products terminals and will make it easier for independent gas stations to move to other brands. The company's overlap in retail and wholesale in local markets was the only area in which the FTC had concerns.

Online brokerage National Discount Brokers Group (NYSE: NDB) dropped $7 1/16 to $24 7/16 after gaining $17 1/2 yesterday on news of strong Q2 earnings. Today's "Heard on the Street" column in The Wall Street Journal said Internet brokerages might be headed for trouble if the mania in trading Web-related stocks cools. Shares of Ameritrade Holding Corp. (Nasdaq: AMTD) lost $3 to $33 3/4, while E*Trade Group (Nasdaq: EGRP) fell $8 3/4 to $51 3/8, and Charles Schwab (NYSE: SCH) gave back $3 1/8 to $56 5/16 on the suggestion.

Meanwhile, retailers moving recently in part on e-commerce news started back downhill this morning: ValueVision International (Nasdaq: VVTV) lost $2 15/16 to $8 7/16, Active Apparel Group (Nasdaq: AAGP) dropped $7 1/2 to $11 1/2, and SkyMall Inc. (Nasdaq: SKYM) fell $13 21/32 to $27 3/32.

Sportswear designer G-III Apparel Group (Nasdaq: GIII) lost $3 1/8 to $5 3/4 today following a heavily traded session yesterday reportedly fueled by rumors of an impending launch of an e-commerce site. A company spokesperson told Reuters yesterday no date was set.

Even news of yet another online sales site from cruiser motorcycle maker Biker's Dream (Nasdaq: BIKR) wasn't enough to fuel a rise this morning, as the shares skidded $2 11/32 to $4 1/2. That's a bit strange, since rumors of just such an announcement were credited for yesterday's rise to as high as $9 1/4 on about 27 times normal trading volume. The site is expected to go online in February.

Nuclear medical imaging systems maker Adac Laboratories (Nasdaq: ADAC) slid $1 3/4 to $20 1/8 today after it fell $5 1/4 in yesterday's session on news that it will restate fiscal 1996, 1997, and 1998 results. The company was hit with a class action lawsuit today in response to the news. Such suits are commonly filed after companies restate earnings (downward, anyhow) as investors claim they bought shares at inflated prices. Warburg Dillon Read didn't help matters by cutting Adac to "hold" from "strong buy" this morning.


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