Wednesday, April 21, 1999
DJIA 10481.48 +32.93 (+0.32%) S&P 500 1319.41 +13.24 (+1.01%) Nasdaq 2450.87 +41.23 (+1.71%) Russell 2000 424.15 +8.81 (+2.12%) 30-Year Bond 96 14/32 +8/32 5.49 Yield

An Investment Opinion
by Warren Gump

Anemic Amgen?

Stock of volatile biotechnology company Amgen (Nasdaq: AMGN) was down $5 3/8 to $63 5/8 this morning after the company reported earnings last night. This stock has been bouncing wildly this past week, with intraday trading ranges of over 10% each day. Despite today's drop, the stock is still up about 20% so far in 1999. Q1 earnings were up 31% to $0.46 per share, $0.02 better than First Call consensus estimate. Sales of Epogen and Neupogen, the company's primary drugs, were up a combined 21%. Amgen reiterated its previous statement that it expects earnings for the year to be $1.80-$1.85 per share, with product sales up in the mid- to high-teens. Donaldson, Lufkin, & Jenrette reiterated its "buy" rating on the stock, but Morgan Stanley Dean Witter lowered its rating to "neutral" from "outperform."

Concern at Morgan Stanley was reportedly related to an expected slowdown in Epogen sales later this year. Amgen had already indicated that that was likely to happen prior to yesterday's news release. The primary this slowdown in growth is primarily the result of a March 1998 shift in Medicare policy that eased restrictions on Epogen reimbursement. When these restrictions were lifted, sales growth of Epogen accelerated for a year because comparisons were against periods where these restrictions were in place. Now that we have anniversaried this regulatory shift, future results will have not have these unnaturally high growth rates. Despite this slowdown in sales growth, Amgen will still experience much more rapid growth than most of its pharmaceutical step-siblings.

I can't tell you where Amgen stock, or any other for that matter, is going to go in the future. With the revolutionary advances being made in biotechnology, however, I think it would be advisable to have some exposure to this sector over the next couple of decades. Not having a medical background myself, I can't intelligently interpret the medical research coming out of any of these companies. I simply have to rely on a company's management to make the right decisions. To ensure that the vision of management can be funded, I also want to find a company with strong financial resources and substantial research and development (R&D) programs. With a management team that has created the Goliath of the biotech industry, a balance sheet carrying over $1.3 billion in cash, and R&D spending running about 27% of sales, Amgen seems to fit the bill.


Telecommunications equipment company Lucent Technologies (NYSE: LU) dialed up a gain of $2 7/8 to $57 1/8 after Sprint (NYSE: PCS) awarded the company a three-year contract to million to supply equipment and services for the next phase of Sprint PCS' nationwide wireless network development and expansion worth at least $780 million. The deal complements the $2.5 billion already announced for the first two phases of the rollout.

Online services giant America Online (NYSE: AOL) added $8 7/8 to $137 9/16 this morning as it was named one of the first five companies to compete with Network Solutions (Nasdaq: NSOL) in the formerly monopolistic Web domain name registrar business. Also named was a unit of France Telecom (NYSE: FTE). AT&T (NYSE: T) made the "B" list, a group of 28 organizations that will join the fray in two months. Network Solutions, recently battered in part because of uncertainty about its new market environment, picked up $11 1/8 to $71 1/8.

AT&T plans to offer local residential service in New York by the end of the year by leasing Bell Atlantic's (NYSE: BEL) phone network, The Wall Street Journal reported. AT&T executives have said it will take the company through 2000 to outfit all its cable lines for two-way telephone service, which requires advanced technical upgrades. Shares of the telecommunications services company moved up $7/8 to $55 7/8.

Regional phone company BellSouth Corp. (NYSE: BLS) advanced $1 1/8 to $42 1/2 this morning following news that it and AT&T successfully completed a series of joint tests to ensure that telephone calls will go through as usual during the changeover into Y2K.

German enterprise software giant SAP A.G. (NYSE: SAP) picked up $3 13/16 to $28 7/16 after reporting Q1 net income flat with last year's Q1 levels at 98 million euros on 22% revenue growth. While the industrywide problem many software companies are blaming for weak business -- slowed client spending because of Year 2000 necessities -- "still persists," said SAP America President and CEO Kevin McKay said, "we have noticed increased interest in SAP's R/3 and New Dimension products as our inter-enterprise operability becomes more prominent because of the Internet.''

Drug wholesaler Bergen Brunswig Corp. (NYSE: BBC) bottled $11/16 to $21 3/4 after the California Superior Court allowed the company's planned purchase of PharMerica Inc. (Nasdaq: DOSE) to proceed. Bergen and PharMerica were named as defendants in an April 14 lawsuit commenced by PMR Corp. asking for a restraining order stopping the deal from closing.

Wireless communications technologies firm Qualcomm (Nasdaq: QCOM), which reported fiscal Q2 EPS of $0.82 before charges -- beating both last year's $0.25 mark and Wall Street's $0.59 estimate -- raced ahead $37 7/8 to $178 1/2. Several brokerages upgraded the stock after the news was released. Operating expenses -- which figure in research and development, selling and marketing, and general and administrative expenditures -- excluding one-time charges held firm at 22% of revenues.

Shares of online brokerage E*Trade (Nasdaq: EGRP) were bid up $10 3/16 to $100 on news of a partnership to develop its E*Offering online investment bank site in cooperation with USWeb/CKS (Nasdaq: USWB) with eyes on a June launch. E*Trade also announced the close of its purchase of financial media website operator ClearStation Inc. USWeb's stock took on $2 7/8 to $28 1/4 this morning. Yesterday, E*Trade reported a pro forma Q1 loss of $0.12 per share due, better than the projected $0.17 loss.

Network computing company Sun Microsystems (Nasdaq: SUNW) rose $3 3/8 to $57 3/4 this morning. The company said COO Edward Zander will become president as well, while CEO and Chairman Scott McNealy will remain in his current posts.

Securities market maker Knight/Trimark Group (Nasdaq: NITE) gained $14 3/4 to $101 1/2 after reporting Q1 EPS of $0.67, up from $0.20 last year and $0.33 in Q4. Wall Street's estimate was $0.39. The company also said it will split its shares 2-for-1 after the market's close on May 14.

Earnings Movers

Boston Scientific (NYSE: BSX) up $4 3/8 to $41 1/16; Q1 EPS: $0.25 vs. $0.15 last year; estimate: $0.21

Broadcom Corp. (Nasdaq: BRCM) up $9 1/8 to $73 1/2; Q1 EPS: $0.19 vs. $0.09 last year; estimate: $0.15

Coca-Cola (NYSE: KO) up $1 13/16 to $67 1/16; Q1 EPS: $0.30 vs. $0.34 last year; estimate: $0.29

Colgate-Palmolive (NYSE: CL) up $3 5/16 to $96 5/16; Q1 EPS: $0.65 vs. $0.60 last year; estimate: $0.64

DuPont Photomasks (Nasdaq: DPMI) up $3 7/8 to $46 7/8; fiscal Q3 EPS: $0.28 vs. $0.50 last year; estimate: $0.22

Encad Inc. (Nasdaq: ENCD) up $1/4 to $6 7/8; Q1 EPS: profit of $0.03 vs. loss of $0.06 last year; estimate: loss of $0.05

Ingersoll-Rand (NYSE: IR) up $5/16 to $65 1/16; Q1 EPS: $0.73 vs. $0.60 last year; estimate: $0.68

Kimberly-Clark (NYSE: KMB) up $4 7/16 to $58 3/4; Q1 EPS: $0.72 (excluding gain) vs. $0.56 last year; estimate: $0.65

Musicland Stores (NYSE: MLG) up $13/16 to $10 1/8; Q1 EPS: profit of $0.04 vs. loss of $0.11; estimate: loss of $0.04

Nautica Enterprises (Nasdaq: NAUT) up $5/16 to $13 5/16; fiscal Q4 EPS: $0.25 vs. $0.33 last year; estimate: $0.24

Qwest Communications International (Nasdaq: QWST) up $4 7/16 to $94 15/16; Q1 EPS: profit of $0.01 vs. loss of $0.06 last year (pro forma); estimate: breakeven

RealNetworks (Nasdaq: RNWK) up $14 15/16 to $196; Q1 EPS: loss of $0.02 vs. loss of $0.07 last year; estimate: loss of $0.03

Xoom.com (Nasdaq: XMCM) up $4 3/4 to $75; Q1 EPS: loss of $0.24 vs. loss of $0.29 last year; estimate: loss of $0.26


Bookseller Borders Group (NYSE: BGP) was burned for a $2 7/16 loss to $14 5/8 after Philip Pfeffer resigned as CEO after a mere five months at the helm. His duties will be assumed by current chairman and former CEO Robert DiRomualdo. The company also said it sees fiscal Q1 earnings of $0.04 to $0.05 per share for its retail stores and a loss of $0.05 to $0.06 per share for its Borders.com unit, excluding a $0.04 per share loss tied to Pfeffer's departure. Borders also said its quarterly same-store sales are up 3.9% to date.

Paging company SkyTel Communications (Nasdaq: SKYT) tumbled $2 5/8 to $14 5/16 after saying "significantly" lower-than-expected subscriber growth in Q1 will continue and dampen earnings growth this year. Still, the company managed to earn $0.05 per share in Q1 (excluding a gain), meeting the First Call mean estimate. Additionally, the firm said Warburg Dillon Read has been hired to help evaluate "strategic alternatives." Both Goldman Sachs and Credit Suisse First Boston cut their ratings on SkyTel this morning.

Electronic design automation (EDA) tools maker Cadence Design Systems (NYSE: CDN) was wrecked for $9 1/4 to $11 9/16 after reporting Q1 EPS of $0.31 (excluding charges and goodwill amortization), a penny ahead of the Zacks mean estimate. However, the company said it sees its revenues and earnings growth slowing through the rest of the year. That guidance brought a flurry of downgrades from at least six brokerage firms this morning. Merger mate Quickturn Design Systems (Nasdaq: QKTN) slid $2 3/16 to $12 1/8.

Network connectivity products maker Osicom Technologies (Nasdaq: FIBR) fell $2 3/8 to $16 1/2 after saying it has not yet received any purchase orders from a Japanese client under a previously announced contract for a wireless personal data assistant (PDA) product. When the contract was announced last July, Osicom had projected $4 million in shipments per month over a two-year period starting in February 1999. The company said it is "actively pursuing" other Japanese customers for the PDA.

Digital and analog oscilloscopes maker LeCroy Corp. (Nasdaq: LCRY) was dumped $2 11/16 to $16 3/4 after posting fiscal Q3 EPS of $0.27 (excluding charges), down from last year's $0.33 but in line with the Zacks mean estimate. However, the company said higher research and development expenditures and investments in networking products in Q4 will result in breakeven results, missing analysts' EPS expectations of $0.45.

Telecom equipment company Advanced Fibre Communications (Nasdaq: AFCI) slid $13/16 to $7 7/32 after saying a slowdown in international sales led to Q1 EPS of $0.04 compared to $0.15 last year, which was still in line with the Zacks mean estimate. NationsBanc Montgomery Securities lowered its rating to "hold" from "buy."

Aluminum producer Kaiser Aluminum (NYSE: KLU) dropped $9/16 to $6 5/16 after saying low primary metal prices and shipment levels and an unfavorable product mix resulted in a Q1 loss of $0.48 per share, which was worse than the loss of $0.27 per share expected by analysts surveyed by First Call. On the bright side, the company sees its financial results improving in Q2.

Electrical and industrial equipment manufacturer Raychem Corp. (NYSE: RYC) fell $1 5/8 to $26 3/8 after Goldman Sachs lowered its rating on the company to "outperform" from "recommended list." Yesterday, the firm posted fiscal Q3 EPS of $0.43 versus $0.46 a year ago, which was in line with estimates.


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