Ups and Downs Plus Top News (QuickNews) October 12, 1999

Motley Fool QuickNews

Tuesday 10/12/99

Closing Market Numbers

DJIA         10417.06  -231.12   (-2.17%) 
S&P 500       1313.04   -22.17   (-1.66%)
Nasdaq        2872.43   -43.52   (-1.49%)
Russell 2000   424.68    -5.51   (-1.28%)
30-Year Bond 98 20/32   -13/32 6.23 Yield

Today's Market Movers:


Mutual fund manager T.Rowe Price (Nasdaq: TROW) gained $1 25/32 to $31 7/8 on news that it will be added to the Standard & Poor's 500 index. The company will replace Data General (NYSE: DG), which is being acquired by enterprise storage company EMC Corp. (NYSE: EMC).

Online enterprise training and education services firm (Nasdaq: CLKS) added $1 3/16 to $10 5/8 after receiving $10 million in private equity funding from Paul Allen's Vulcan Ventures and an investment affiliate of Credit Suisse First Boston.

Electric power provider Calpine Corp. (NYSE: CPN) surged $6 1/8 to $49 5/8 after saying that its recent acquisition of 14 geothermal plants from Pacific Gas and Electric (NYSE: PCG) will lead to Q3 EPS between $0.70 and $0.72, topping the First Call mean estimate of $0.58 (adjusted for a two-for-one stock split).

Specialized accident and health insurer The Centris Group (NYSE: CGE) jumped $1 3/16 to $11 1/2 after agreeing to be acquired by specialty insurer HCC Insurance Holdings (NYSE: HCC) for $171 million in cash, or $12.50 per share. HCC fell $9/16 to $15 7/16.

E-business infrastructure software firm Vitria Technology (Nasdaq: VITR) picked up $8 7/16 to $55 after announcing a strategic relationship with front office software firm Clarify (Nasdaq: CLFY) to provide an end-to-end e-business solution for the telecom industry. BancBoston Robertson Stephens and SoundView Technology Group started coverage of the firm with "buy" ratings, while Credit Suisse First Boston granted the firm an initial "strong buy."


Commercial and defense electronics company Raytheon (NYSE: RTN.A) was shot down for a $19 1/2 loss to $22 1/2 after warning that revenue and margin shortfalls at its Raytheon Systems unit will lead to 1999 EPS between $1.40 and $1.50 (excluding charges), missing the most recent estimate of $3.56. In 2000, the company is forecasting EPS between $2.10 and $2.25, below analysts' estimate of $3.91.

Facilities-based telecommunications company Primus Telecommunications (Nasdaq: PRTL) slid $2 9/16 to $20 1/2 after selling 8 million shares in a public offering at a price of $22.50 per share, which was below its closing price of $23 1/16 last night.

Enterprise access and integration software firm NEON Systems (Nasdaq: NESY) was burned for a $6 1/8 loss to $20 7/8 after saying that lower-than-expected revenues will lead to fiscal Q2 EPS between $0.07 and $0.08, which is toward the low end of analysts' expectations. New Era of Networks (Nasdaq: NEON), which is often confused with NEON Systems, was sent down $2 3/8 to $25 1/8.

CPI Corp. (NYSE: CPY), which operates Sears Portrait Studios and Prints Plus wall decor stores, sank $4 5/8 to $20 3/8 after an affiliate of American Securities Capital Partners backed out of its agreement to purchase the company for $37 per share in cash.

Today's Top Stories:

Enron Growing Old and New Businesses
By Richard McCaffery (TMF Gibson)

Natural gas, electricity, and communications company Enron (NYSE: ENE) reported net income (excluding nonrecurring items) of $223 million for the third quarter today, a cool 33% higher than the year-earlier period. Net earnings per diluted share increased 13% to $0.27, up from $0.24 a year ago and in line with analyst estimates.

The Houston-based company attributed its strong performance to the size and scope of its energy wholesale business, growing energy outsourcing agreements, and worldwide deregulation of the utilities industry. Third quarter revenue reached $12 billion.

Since Enron is a diverse company pushing into new service areas, it's not an easy car for investors to steer. Couple this with worldwide operations and you've got a twisty road at high speed. Nevertheless, it's probably worth getting up to speed because Enron isn't the first energy company looking to leverage its private network in order to enter the communications business.

First, the basics. Enron is a natural gas, electricity, and communications company that operates through a family of subsidiaries and affiliates. Its traditional businesses include the exploration and production of natural gas and crude oil, the operation of natural gas pipelines and electric utility operations, finance services, and other energy-related lines of business.

Enron, for example, runs the Portland General Electric Utility Co., which provides electricity for about 714,000 retail customers. In 1998 it formed a water company called Azurix (NYSE: AZX), which provides water and waste water services, and develops and manages water resources. Enron has operations in North America, South America, Europe, India, and Asia.

As the utility industry deregulates both worldwide and in the United States, Enron has positioned itself to take advantage of revenue opportunities. Just in North America, for example, the nonregulated electricity market is expected to grow about 35% annually. This is driving growth. Enron is the largest supplier of electricity and natural gas in North America.

Its most recent effort, however, is broadband communications. Enron is building a fiber optic network in the U.S. that will serve as an Internet backbone. The network, which enhances the company's existing network (used to provide private communications across its enormous geographic range of operations), will be used to offer corporate customers high-speed data applications and streaming media services. So far Enron has built out 10,000 miles of its network. It will be 17,000 miles long when completed at the end of 2000.

The communications push is an interesting play, and not as far afield from energy services as investors might think. There is a precedent for utility companies leveraging their private communications networks to launch new businesses, and the breadth of Enron's operations gives them a shot at becoming a formidable player. For more on power companies morphing into communications providers, check out Bill Mann's recent article on Montana Power (NYSE: MTP).

Through its communications business, Enron's management believes it can cash in on the corporate world's desperate need for high-quality, high-speed communications over an IP (Internet protocol) network.

The fiber optic network is actually just a small part of this strategy. The central puzzle piece is the Enron Intelligent Network, a software platform aimed at facilitating e-commerce services over the network. The company's goal is to get broadband services to corporate desktops, and EIN, introduced early this year, is the way it's going to do it.

So far, Enron has several major customers testing the platform. Customers and revenue, presumably, are down the road. To help deliver its communications services, Enron has signed a range of partners, including GTE Internetworking, Verio (Nasdaq: VRIO), and NorthPoint Communications (Nasdaq: NPNT). It's unclear what kind of revenue the company hopes to generate from its communications division.

As such, investors should be eager to hear more about Enron's plan. Until then, it would probably be smart to wait on the sidelines until the company starts announcing customers and fleshing out the plan in its financial releases.

FOOL PLATE SPECIAL An Investment Opinion
Another Year For Hertz's Olsen? Not Exactly.
By Dave Marino-Nachison (TMF Braden)

Automobile and equipment rental giant Hertz Corp. (NYSE: HRZ) will say good-bye to nearly a quarter-century of leadership when the millennium-ending ball drops on Dick Clark's head. Frank Olson, who became CEO in 1977, will retire Dec. 31.

Olson will continue as chairman, a position he's held since 1980.

Hertz stockholders shouldn't fear an upheaval in the corporate halls. President and COO Craig Koch, who has been with the company since 1971 -- and in his current positions since 1993 -- will step right in for Olson.

Koch took the opportunity presented by today's announcement to attempt to generate a little buzz. "I am confident the Hertz brand has significant growth opportunities in the future," the CEO-to-be said. "I look forward to the challenge of globally developing those opportunities."

He is taking over a company that apparently is in good shape.

In the immediate term, Hertz today reported Q3 EPS of $1.28, up from $1.09 last year and $0.03 better than First Call's nine-analyst consensus estimate. Revenues rose about 9.8% year-over-year, and operating margins improved to 10.3% from 9.7% as selling, general, and administrative expenses fell slightly.

That trend seems likely to continue with nine-month results showing similar improvement.

With operating income and net income growth more than tripling revenue growth over the last five years (on a compounded basis), Hertz has improved steadily on all its key income statement items; return on equity has also risen over that period, approaching 20% in 1998 after moving up gradually from 12.3% in 1994. Wall Street expects more of the same in coming years.

Those numbers are key for managing profits in a business where a price hike of just a few dollars per day makes headlines, and cash requirements for fleet and upkeep are enormous. For a look at a company that has had trouble keeping up, click on this March Foolish Trouble discussing Budget Group (NYSE: BD).

Hertz, however, seems to be chugging along. With a leading position domestically and opportunities emerging overseas, Hertz should continue providing returns for shareholders -- as it has over its life as a publicly traded company, nearly keeping pace with the S&P 500 -- despite the change in the big office.

More of Today's Best:

Associates First Capital Turns in Q3 Numbers
By By Brian Graney (TMF Panic)
-- Consumer and commercial finance giant Associates First Capital (NYSE: AFS) turned in its third quarter results this morning. Earnings were $0.53 per share, up 16% from a year ago and in line with the First Call mean estimate. The Associates, as the company is known, has seen its stock buffeted this year as interest rates have trended up and the company has worked to integrate its acquisition of Avco Financial Services, which was purchased from Textron (NYSE: TXT) for $3.9 billion earlier in the year. Swallowing Avco cemented the company's place as the country's largest independent provider of commercial finance services, with leading positions in home equity loans and credit cards issuance. However, the deal also slowed The Associates' growth rate somewhat.

SoftNet Aims at Asia
By Dave Marino-Nachison (TMF Braden)
-- Shares of cable and satellite Internet service provider SoftNet Systems (Nasdaq: SOFN) rose approximately 13% today following news that Hong Kong's Pacific Century CyberWorks (PCCW) agreed to buy 5 million shares of SoftNet stock for $129 million. The implied price per share, $25.80, probably isn't what accounted for today's move since that amounts to a measly premium of a quarter per stub. Instead, it looks like the market is reacting to the opportunities that the deal appears to present for SoftNet.

FOOL ON THE HILL An Investment Opinion
The Wonderful World of Disney
By Warren Gump (TMF Gump)
-- If you've become a shareholder of Disney (NYSE: DIS) during the past couple of years, you may fear that I was in the loony ward when concocting the title for tonight's article. Since October 1997, Disney owners have endured a 9% loss in value while investors in the Standard & Poor's 500 index have enjoyed a 44% gain. If instead of looking at a two-year time horizon you measure performance from the stock's peak last May, you find that Disney shareholders have lost 36% of their value compared to a 22% gain for the S&P 500. Ouch. That's a nasty spell.

Harley-Davidson Picks Up Speed
By Richard McCaffery (TMF Gibson)
-- Heavyweight motorcycle maker Harley-Davidson (NYSE: HDI) roared to record sales and earnings for the third quarter based on high shipment volumes spurred, in part, by the introduction of seven new Softail models. Harley-Davidson posted Q3 sales of $623 million, up 21% from the same period last year, and earnings of $0.42 per share, up 25%. The performance was good enough to beat First Call/Thomson mean estimates by a penny. The Milwaukee company shipped 42,615 Harley-Davidson motorcycles during the quarter, up 17% from last year.