THE MARKET MIDDAY
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Wal-Mart... Up Again
Discount retailing powerhouse Wal-Mart Stores (NYSE: WMT) reported first-quarter earnings this morning of $0.25 a share, up from $0.18 in last year's Q1 on a split-adjusted basis and ahead of analysts' forecasts of $0.22. Same-store sales for the quarter rose 9.3% -- 9.6% at Wal-Mart stores and 8.3% at Sam's Club. Total sales were up 16% year-over-year to $34.7 billion. While the fruit of Wal-Mart's competitive strategy has been plucked by many investors over its corporate lifetime, the last two year's have witnessed unusual abundance -- in the form of 200% share appreciation. Wal-Mart gained $1 1/2 to $46 11/16 this morning.
At the end of fiscal year 1998, President and CEO David Glass commented, "With the momentum we have, I am confident that fiscal 1999 will be another record year." Indeed; earnings reached $0.99 per share (split adjusted) in 1999, up 27% over 1998, and total sales increased 16.7% to $137.6 billion. Comp-store sales were up 8.9%, consisting of 8.8% growth at the discount stores and Supercenters and 9.2% growth at Sam's Club units. At the time, overall comps were boosted by high food comp-store sales (8%) as well as average sales per customer gains, which together accounted for about 65% of the sales increase. A key element contributing to this result was the overall frequency of customer visits. With the theme being "food shoppers are frequent shoppers," Wal-Mart exploited the opportunity for higher margin purchases along the way -- thanks in part to great merchandising that buries some of the staples deep within the bowels of the store.
Of course, the fastest growing segment in the retailing industry, the supercenter, is going to be where it's at over the next five years and beyond, as Wal-Mart gross margins improve to reflect the movement away from Sam's merchandise (overall cost of sales dropped 43 basis points in Q1). Wal-Mart plans to open about 170 new supercenters worldwide in 2000, compared with 130 that it opened in 1998 (a year where almost half of the company's profit growth was derived from the supercenter). Every year or so, it seems like we write an "Ode to Wal-Mart" in this space as the company churns past revenue, internal return, and cash flow projections.
A discounted cash flow model performed in 1975 that reflected the company's actual returns would have been laughed at. With the sustainability of the firm's growth hinging on its competitive strategy, interested investors ought to begin the valuation process anew.
Biopharmaceutical firm Immunex Corp. (Nasdaq: IMNX) shot up $31 to $138 after saying it plans to file with the Food and Drug Administration for an expanded label for its Enbrel rheumatoid arthritis (RA) drug. Enbrel is currently approved for treating advanced RA patients who have failed other remedies, but the company said a new Phase III study shows that the drug also slowed the progression of early and active RA and reduced signs and symptoms of the disease in less-advanced patients.
Internet services conglomerate America Online (NYSE: AOL) gained $9 to $137 5/16 after influential Morgan Stanley Dean Witter analyst Mary Meeker raised her rating on the stock to "strong buy" from "outperform," citing the company's strong business fundamentals. The company also announced that it has signed AOL TV development agreements with Hughes Electronics' (NYSE: GMH) DirecTV and Hughes Network Systems units, Philips Electronics (NYSE: PHG), and privately held Network Computer Inc.
Material handlers and telescoping hydraulic excavators manufacturer Grandall Industries (Nasdaq: GRDL) advanced $2 1/4 to $19 3/4 after agreeing to be acquired by aerial work platforms maker JLG Industries (NYSE: JLG) for $20 per share in cash, or a total of about $200 million. JLG, which expects the deal to add to its earnings in the first year, rose $7/16 to $17 7/16.
Penske Motorsports (Nasdaq: SPWY) sped ahead $6 1/8 to $49 1/4 after fellow NASCAR racing promoter International Speedway Corp. (Nasdaq: ISCA) agreed to acquire the 88% of the company it doesn't already own for $50 a share, or $623 million, in stock or a combination of cash and stock. International Speedway added $3 1/2 to $53 3/8 on the news, which was detailed in this morning's Breakfast With the Fool.
Internet consulting services provider USWeb/CKS (Nasdaq: USWB) picked up $2 9/16 to $26 1/2 after PaineWebber started coverage of the company with a "strong buy" rating and set a 12-month price target of $35 per share.
Joplin, Missouri-based electricity provider Empire District Electric Co. (NYSE: EDE) surged $4 15/16 to $26 3/16 after agreeing to be acquired by utilities holding company UtiliCorp United (NYSE: UCU) for $29.50 per share in cash or stock, valuing Empire District's shares at a 39% premium to their closing price of $21 1/4 per share yesterday. UtiliCorp will also assume $260 million in debt through the transaction, which is expected to be completed in 2000.
Industrial gas company Praxair (NYSE: PX) rose $2 9/16 to $56 1/16 after Britain's Financial Times reported that the company is in merger talks with fellow industrial gas firm BOC Group PLC (NYSE: BOX). BOC climbed $3 3/16 to $36 15/16 on the report.
Consumer products maker Sunbeam Corp. (NYSE: SOC) moved up $1 1/16 to $8 9/16 after Friedman, Billings, Ramsey & Co. started coverage of the firm with a "market perform" rating.
Website registrar and recent Dueling Fools subject Network Solutions (Nasdaq: NSOL) tacked on $5 13/16 to $73 1/2 after signing an agreement to provide software technical support services to Lucent Technologies' (NYSE: LU) Internet Protocol (IP) Services Product Group.
Network attached storage (NAS) devices maker Meridian Data Inc. (Nasdaq: MDCD) soared $4 1/16 to $7 9/16 after agreeing to be acquired by disk drive maker Quantum Corp. (Nasdaq: QNTM) for about $85 million in stock. The purchase price values Meridian at about $9.41 per share -- more than two and a half times its closing price of $3 1/2 per share yesterday. Quantum rose $23/32 to $19 31/32 this morning.
Internet commerce software developer Elcom International (Nasdaq: ELCO) fell $1/2 to $5 1/4 after reporting a Q1 loss of $0.05 per share, down from a nickel's profit a year ago. One analyst polled by First Call was looking for a $0.14 loss. "The quarterly results were basically in line with our expectations as we continue the company's transition to more of an Internet-based structure," said Chairman and CEO Robert J. Crowell.
Critical Path (Nasdaq: CPTH), which provides e-mail hosting services to Internet service providers, Web portals, and corporations, lost $3 1/4 to $79 after announcing an offering of 4 million shares of common stock, 1 million which are offered by shareholders. The new shares represent about a 12% boost to the current outstanding.
Golf range, ice rink, and family entertainment center operator Family Golf Centers (Nasdaq: FGCI) sliced off $5/16 to $9 7/8 after teeing off Q1 EPS of $0.03, better than last year's $0.08 loss but flat with market estimates.
Online data conversion and content management services company Innodata Corp. (Nasdaq: INOD) slipped $1 7/16 to $13 3/4 after the company said Q1 EPS was $0.18, a dime below last year's mark.
Telecommunications services provider Primus Telecommunications Group (Nasdaq: PRTL) hung up $1 1/8 to $15 1/4 after reporting a Q1 per share loss of $0.89, better than the expected $0.94 loss but well off last year's $0.62 loss.
Online health and medical information provider adam.com (Nasdaq: ADAM) returned $1 5/8 to $13 7/8 after picking up $1 3/4 yesterday after the company debuted its new consumer health information website and reported the acquisition of pediatric website Dr. Greene's HouseCalls. New media company CNET (Nasdaq: CNET), meanwhile, mislaid $7 1/2 to $128 11/16, halting yesterday's $22 7/16 runup.
Shares of Web portal operator Lycos (Nasdaq: LCOS) put back $5 13/16 to $99 7/16 this morning, reversing some of yesterday's $15 3/4 gain fueled by reports that USA Networks (Nasdaq: USAI) will probably give up on its three-month-old bid for the company. Lycos today announced a partnership with CallNOW.com (OTC: CALN), an Internet portal marketing telecommunications services.
Chip performance accelerator technology developer NeoMagic Corp. (Nasdaq: NMGC), downgraded to "neutral" from "outperform" today by Morgan Stanley Dean Witter, lost $1 1/2 to $9 5/8 this morning.
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