THE MARKET MIDDAY
DJIA 11178.50 -31.34 (-0.28%) S&P 500 1409.09 -9.69 (-0.68%) Nasdaq 2836.68 -27.80 (-0.97%) Russell 2000 462.18 -3.08 (-0.66%) 30-Year Bond 91 2/32 +1/32 5.89 Yield
Scarfing Up Uno
The past two weeks have been pretty exciting ones for investors in Uno Restaurant Corp. (NYSE: UNO) as the company's stock has risen about 40% from less than $10 per share to today's midday price of $13 1/2. A big part of that move came last Friday when the stock jumped nearly $2 per share. The company held a conference call on Q3 earnings that were released last Monday that must have instilled confidence in the investor community that the company would meet its growth objectives. Although I haven't yet had a chance to listen to the call, it is accessible through tomorrow by dialing 1-888-836-6074, passcode 1705195. (Uno wins points with me for being responsible enough to provide individual investors access to conference calls, helping to insure equal information dissemination to all potential investors.)
Finding a company like Uno is Peter Lynch Investing 101. (For those of you not familiar with Mr. Lynch, he was a long-term manager of the Fidelity Magellan fund who advocates using your consumer habits as a starting point for investing.) When I wrote a Fool on the Hill column about the company last November, no Wall Street analyst covered it. I had been tracking Uno for several years, however, as an avid consumer of its pizzas since being introduced to the product over a decade ago. While the company experienced depressed earnings in 1996 and 1997, a recovery began in 1998 that is continuing to strengthen. For quite a while, nobody seemed to notice.
Now that the company has achieved seven consecutive quarters of 20%+ earnings growth, however, people are starting to pay attention. During the company's Q3 period, earnings increased 50% year-over-year as same-store sales increased 6.2%. (The sharp earnings jump is partly attributable to a continued rebound from weak 1997 results; longer-term earnings growth should be closer to 20%.) Two weeks ago, BancBoston Robertson Stephens analyst Andrew Barish became the first analyst to cover the company in over a year, starting it with a "buy" rating.
Although Uno's stock price has already risen over 70% this year, the company doesn't appear overvalued based on its Price/Earnings ratio, which stands at only 16x calendar 1999 estimates. Such a situation demonstrates the profits that can be gained by individual investors willing to do a little digging to learn about smaller companies generally ignored by the "pros" on Wall Street. Wading in these waters requires patience, as it can take years for others to recognize the inherent value of a little-known company. Nonetheless, at some point, others will take notice and try to profit, as long as the company can show a reasonable probability of producing sustainable earnings growth.
International telecom carrier Global Crossing (Nasdaq: GBLX) advanced $1 1/4 to $47 3/8 this morning. Telecommunications company Qwest Communications International (Nasdaq: QWST) won the battle to acquire US WEST (NYSE: USW) for $69 per share in stock, subject to a "collar" on Qwest's average share price, ending US WEST's merger agreement with Global Crossing. Qwest, meanwhile, withdrew its competing bid for Frontier Corp. (NYSE: FRO), allowing Global Crossing to proceed with its purchase of Frontier as originally planned before Qwest horned in. For more on the news, please revisit today's Breakfast With the Fool.
Online ticketing and local city guide company Ticketmaster Online-CitySearch (Nasdaq: TMCS) advanced $7 1/4 to $41 1/4 following reports in The Wall Street Journal that Microsoft (Nasdaq: MSFT) may trade portions of its Sidewalk city guide service to the company for a 9% Ticketmaster stake. The deal could be completed as soon as today, the newspaper said. The New York Times reported that Microsoft would have the option to increase its stake in the company to 13%. Microsoft is scheduled to report its fiscal fourth-quarter earnings after today's close.
Hewlett-Packard (NYSE: HWP), maker of PCs, printers, test and measurement instruments, and other electronic equipment, announced it has named Carly Fiorina as its new president and CEO, succeeding Lewis Platt, who previously announced his intention to retire. Fiorina was president of Lucent Technologies' (NYSE: LU) Global Service Provider Business, Lucent's largest and fastest-growing division, with more than $20 billion in annual revenue. HP stock improved $2 5/8 to $116 5/8 on the news.
Cruise and tour operator and marketer Intrav Inc. (Nasdaq: TRAV) journeyed up $3 1/2 to $20 after Swiss travel company Kuoni Reisen Holding AG made a $21.32 per share bid for the company. The approximately $115 million offer represents about a 29% premium to Friday's closing price for Intrav stock. Kuoni said Intrav's founding shareholder, a 74.8% owner, agreed to accept the offer.
National Lampoon franchise owner and recent Foolish Hero J2 Communications (Nasdaq: JTWO) laughed its way up $1 3/4 to $14 1/4 after setting in place a "poison pill" rights plan allowing shareholders to increase their holdings if a person or group obtains a 15% stake in the company. The rights "do not prevent a takeover, but should encourage anyone seeking to acquire the company to negotiate with the board of directors prior to attempting a takeover," said Chairman and CEO James Jimirro.
Shares of online stamp purchasing and printing software company Stamps.com (Nasdaq: STMP) moved up $6 3/8 to $47 after the company said Office Depot (NYSE: ODP) named it its preferred provider of postage over the Internet. Office Depot will offer Stamps.com's service from its website.
Online airfare bidding service priceline.com (Nasdaq: PCLN) was bid up $2 23/32 to $100 1/8 after the company said Continental Airlines (NYSE: CAI.A) will join priceline.com, thus increasing priceline's domestic seat inventory by more than 20%. Priceline also reported a second-quarter loss of $0.10 a share versus a loss of $0.17 in the same quarter a year ago. Analysts had expected a loss of $0.11 a share. Revenues rose to $111.6 million from $7 million last year. Priceline said it intends to sell $250 million in convertible subordinated notes and six million shares of common stock (four million from shareholders) to "invest in further growth of priceline.com's multiple product offerings."
Real-time e-commerce transaction services firm CyberSource Corp. (Nasdaq: CYBS) rose $4 25/32 to $34 25/32 this morning as J.P. Morgan started coverage of the company with a "buy" rating and a share price target of $55. The shares rose $3 5/16 on Friday after Business Week's "Inside Wall Street" column said the company was likely to become a takeover target.
AdForce Inc. (Nasdaq: ADFC) up $4 5/8 to $33 5/8; Q2 EPS loss of $0.40 vs. loss of $1.62 last year; estimate: loss of $0.58 (two analysts)
Citigroup (NYSE: C) up $3/8 to $49 3/8; Q2 EPS $0.71 (before charges) vs. $0.57 last year; estimate: $0.65
CNF Transportation (NYSE: CNF) up $5/16 to $39 7/16; Q2 EPS $0.86 vs. $0.73 last year; estimate: $0.72
Loronix Information Systems (Nasdaq: LORX) up $7/8 to $8 3/4; Q2 EPS $0.13 vs. loss of $0.19 last year; estimate: $0.17 (one analyst)
Several online brokers took it on the chin this morning as an article in this week's Barron's highlighted fears that the sector's growth is slowing. Charles Schwab (NYSE: SCH) lost $2 5/16 to $50 1/8, DLJdirect (NYSE: DIR) sank $1 3/8 to $24 3/4, E*Trade Group (Nasdaq: EGRP) fell $2 1/2 to $35, Ameritrade (Nasdaq: AMTD) slid $2 13/16 to $31 7/16, TD Waterhouse (NYSE: TWE) slipped $1 11/16 to $24 3/8, and National Discount Brokers (NYSE: NDB) slumped $3 9/16 to $44 7/8.
Automated semiconductor wafer fabrication systems maker Novellus Systems (Nasdaq: NVLS) lost $2 23/32 to $72 1/8 after reporting Q2 EPS of $0.31, down from last year's $0.46 but in line with the First Call mean estimate. Sales dropped 8% to $131 million and operating profit margin slipped to 11% from 17% a year ago, but the company expects brighter days ahead as the worldwide chip industry continues to show "significant signs of improvement."
Specialty chemicals and electronics equipment maker MacDermid Inc. (NYSE: MRD) slipped $4 1/16 to $38 15/16 after posting fiscal Q1 EPS of $0.39 versus $0.32 last year, a penny ahead of the Zacks mean estimate. However, the company said it has "cautious" expectations for the current quarter, based on weakness in European markets and softness in its printed circuit business.
Kidney dialysis services provider Total Renal Care (NYSE: TRL) tumbled $3 1/8 to $9 3/4 after saying its Q2 EPS will be between $0.20 and $0.22 due to higher operating expenses and lower operating revenues from its Tacoma office, which represents 55% of its domestic dialysis business. The First Call mean estimate had called for EPS of $0.35. Both chairman and CEO Victor Chaltiel and CFO John King figured it was a good time to hand in their resignations.
Optical disk manufacturer and distributor Metatec International (Nasdaq: META) fell $1 5/16 to $4 1/16 after warning that it will report a Q2 loss between $0.08 and $0.12 per share due to greater-than-anticipated seasonality in its recently acquired CD-ROM services business, which was purchased from Imation Corp. (NYSE: IMN). Last year, the company earned $0.05 per share in Q2.
Information technology consultant Keane Corp. (AMEX: KEA) slid $1 1/4 to $25 9/16 after FAC/Equities First Albany reportedly cut its rating on the firm to "neutral" from "accumulate."
Personal communications services (PCS) provider Aerial Communications (Nasdaq: AERL) descended $1 to $16 following an ABN Amro downgrade to "hold" from "buy."
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