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Closing Market NumbersDJIA 10470.25 +172.56 (+1.68%) S&P 500 1301.65 +18.04 (+1.41%) Nasdaq 2816.52 +14.57 (+0.52%) Russell 2000 418.69 +4.42 (+1.07%) 30-Year Bond 97 1/32 +3/32 6.35 Yield
Today's Market Movers:
For an extended list of today's earnings results, click here.
UPSSwedish mobile phone maker Ericsson (Nasdaq: ERICY) moved up $5 1/4 to $39 1/16 after the company said it expects full-year 1999 sales growth of 12% to 15%, better than previous expectations of 10%. Pretax earnings of 15 billion to 16 billion kronor "should be achievable," the company said. Although it still appears likely to underperform last year's 18.2 billion kronor, the new estimate encouraged investors today. Third-quarter net income fell to 1.33 kronor per share from 1.59 last year.
Business-to-business Internet community company VerticalNet Inc. (Nasdaq: VERT) climbed $4 7/16 to $62 7/16 after announcing an initiative with IBM (NYSE: IBM) in which VerticalNet will promote IBM's products and services on its vertical communities, and IBM will work with its customers to create co-branded storefronts -- bought from VerticalNet -- using IBM's Net.commerce software. VerticalNet, which was a subject of the Fool's StockTalk interview feature in late June, reported a Q3 loss per share of $0.29, two cents better than expected by First Call's analyst consensus.
Power management equipment manufacturer American Power Conversion (Nasdaq: APCC) powered up $3 9/16 to $20 13/16 after the company said it expects to report full-year earnings of "roughly" $1.03 per share, $0.08 better than First Call's four-analyst consensus estimate. The company, a holding of the Fool's Boring Portfolio, also turned in Q3 EPS of $0.32, up from $0.24 last year and $0.04 better than projected.
East Coast wireless telecommunications firm Omnipoint Corp. (Nasdaq: OMPT) dialed up gains of $4 1/16 to $75 1/16 following its announcement of plans to buy >East/West Communications Inc. (Nasdaq: EWCM). East/West holds five wireless licenses covering approximately 22.2 million customers, most of them in Los Angeles and Washington, D.C. Omnipoint invested $3 million in East/West today for 300,000 shares and agreed to buy the rest with another 1.775 million Omnipoint shares.
Remote voice access products provider MCK Communications Inc. (Nasdaq: MCKC) rose $4 to $20 today in the company's first day of trading. MCK sold 3.4 million shares to the public for $16 each. Among the uses planned for the proceeds of the offering are the redemption of outstanding preferred stock and debt service.
Embedded systems software, tools, and engineering services company Integrated Systems (Nasdaq: INTS) jumped $5 7/16 to $16 after agreeing to be bought by Wind River Systems (Nasdaq: WIND) in a stock swap by which Integrated stockholders will get 0.92 shares of Wind River for each of their company's stubs. That values Integrated at about $18.46 per share, about a 75% premium to last night's close. Wind River lost $1 1/16 to $19 today.
Web hosting and Internet application services company NaviSite Inc. (Nasdaq: NAVI) moved ahead $20 5/8 to $34 5/8 on the day of its IPO, having sold 5.5 million shares to the public at $14 per stub. Proceeds from the offering will be spent on, among other things, network expansion, sales and marketing, and staffing improvements.
Fiber optic network transmission equipment company Sycamore Networks (NYSE: SCMR), which yesterday sold 7.5 million shares for $38 each, rocketed ahead $146 3/4, an amazing 386%, to $184 3/4 in the company's first trading session. The company plans to use the proceeds for capital expenditures, paying debt, and other purposes.
DOWNSHealthcare products and services distributor Henry Schein (Nasdaq: HSIC) lost $2 7/8 to $10 7/8 after the company told investors Q4 net income and EPS is expected to come in flat with, or below, third-quarter levels before the company resumes positive earnings growth in 2000. Q3 EPS was $0.40, up $0.02 from last year but $0.04 below Street estimates. Analysts were looking for a $0.54 per share profit in Q4. Henry Schein had met or beaten estimates in Q1 and Q2.
Microelectronic circuits and interconnect products maker Aeroflex Inc. (NYSE: ARX) was hit for a loss of $4 5/16 to $5 11/16 after the company said it expects fiscal Q2 sales and operating profits to be about flat with fiscal Q1's. "The company is experiencing softness in bookings and shipments in the satellite communications and other microelectronic product areas," said President Michael Gorin, "which is expected to continue for the near term." Q1 sales were $42.1 million, while EPS was $0.15, up from $0.12 last year and $0.03 below estimates.
Trash hauler Waste Management (NYSE: WMI) dumped $7/16 to $17 1/4 after the company said the preliminary findings of an internal review suggest that while no final determinations have been made, a "material unfavorable impact" on the company's third quarter and year ending 1999 are "likely." Waste Management plans to report full review results, along with Q3 results, Nov. 9, at which time investors can expect revised earnings guidance for the rest of the year.
Internet customer relationship management company Art Technology Group (Nasdaq: ARTG), which turned in a net loss of $0.20 per share -- broader than last year's $0.19 loss and more than twice Wall Street's projected dime loss -- dropped $8 1/32 to $59 13/32 today. The company said it is planning to offer 4.5 million shares of company stock, most of which will be sold by shareholders, to the public. It hasn't registered the shares with the SEC yet.
Enhanced directory assistance call centers operator Metro One Telecommunications (Nasdaq: MTON) fell $1 11/16 to $15 1/16 today. The company said it plans to sell 2 million additional shares to the public; stockholders will sell 67,500 more. The company also reported Q3 EPS of $0.06, down from $0.08 last year and a penny below estimates. "Our bottom-line results reflect the increased staffing and infrastructure expenditures necessary to support the current and anticipated growth of our overall call volume," said CEO Timothy Timmins.
Drug wholesaler AmeriSource Health Corp. (NYSE: AAS) spilled $4 7/16 to $12 3/16 following the company's announcement that it expects fiscal Q4 (ended Sept. 30) EPS of between $0.43 and $0.45. Last year's tally was $0.41; Wall Street's consensus estimate was $0.49. One of the customers is undergoing Chapter 11 bankruptcy restructuring and AmeriSouce anticipates an additional bad debt expense of approximately $2.2 million in Q4 for the customer's outstanding receivables, which will account for a $0.03 per share charge to earnings.
Biomaterials and surgical devices Lifecore Biomedical (Nasdaq: LCBM) slipped $2 3/16 to $11 7/8 after the company said an FDA panel meeting scheduled for Nov. 16, at which the company's Intergel ferric hyaluronate product was to be reviewed, has been postponed. The FDA said it's looking to reschedule in January but no date has been set.
Today's Top Stories:Biogen Slips After Drug Trial Halted
Bill Barker (TMF Max)
Shares of Cambridge, Massachusetts-based Biogen (Nasdaq: BGEN) slipped $8 5/8 this morning to $63 15/16, following the company's announcement after the close of the market yesterday that it was halting several Phase II trials of an antibody-based drug, Antova, that was being tested for treating hemophilia, multiple sclerosis, and diabetes. Biogen said that it was "working closely with the FDA on reviewing data and determining when trials could be resumed."
Biogen currently derives the lion's share of its revenues from the sales of one drug, Avonex, a once-a-week treatment that slows the progression of multiple sclerosis. Sales for Avonex have risen to a level of approximately $700 million annually, and are expected to reach the $1 billion level within two to three years. As with any biotech stock, however, the price placed on the company's shares heavily reflects not only the success of approved drugs but what is in the research and development pipeline. Antova was the second-closest drug (after Amevive, a psoriasis treatment) to completing the Food and Drug Administration (FDA) testing process. With the possibility now raised that Antova may not make it to market, the stock today is reflecting a renewed understanding that, at the moment, Biogen has only one major drug upon which it can rely, and that patent protection on that drug does not last forever.
In reaction to the news of the canceled trials, many of Wall Street's analysts either downgraded the stock, dropped their "price targets" or both. One holdout on the downgrading was Prudential Securities, which quickly reiterated its "Strong Buy" and price target on the stock. Prudential's refusal to downgrade may in some small part be related to the fact that, in a bit of bad timing, only three days earlier Prudential had upgraded the stock from "Accumulate" to "Strong Buy" for valuation reasons.
Prudential maintains its price target of $96 for the stock, though reading both the October 19 report and this morning's report, it is completely impossible to tell what, if anything, the price target might be based upon. Since yesterday's announcement regarding Avonex clearly does influence, negatively, the probability that Avonex will contribute to future cash flows, apparently Prudential's price target was based on something other than the intrinsic value of the company as estimated by discounting estimated future cash flows.
The take that yesterday's announcement should not affect the valuation of the company is defensible if one is working from the premise that a certain amount of both positive and negative announcements regarding the development of drugs prior to approval by the FDA is inevitable. One can make assumptions about the approximate number of drugs that will successfully wind their way through the regulatory process, and no one announcement should therefore affect the value of the whole company too heavily if an investor, and the market, has already accurately discounted the probability of any one drug turning into a blockbuster.
That approach is best used where there are a sufficient number of drugs that have been successfully developed already by a company to demonstrate that future drug approvals have at least some level of probability. Biogen, however, is essentially a one-trick pony at the time being. Behind the strong flaghsip product Avonex there are numerous drugs in the research pipeline, but there is little assurance in the historical record that any one drug will make it big, or ever make it at all.
Shares of Biogen are still up over 50% for the year despite the fact that future cash flows now appear somewhat more iffy than they might have appeared at the beginning of the year. Potential investors who are thinking about whether Biogen is currently at an attractive price may wish to keep that in mind when attempting to value the company today.
Inktomi Sales Out of Sight
Richard McCaffery (TMF Gibson)
Internet search engine software company Inktomi (Nasdaq: INKT) reported a net loss of $4.9 million, or $0.09 per share, compared to a loss of $0.18 per share a year ago for its fiscal fourth quarter. The results, which beat analysts' estimates by a penny per share, were driven by growth of new customers, expanding relationships with existing customers, and entry into new markets.
For the fiscal year, the San Jose, California company reported a net loss of $0.48 per share compared to $0.63 per share a year ago. Analysts had expected a loss of $0.46 per share, according to IBES International.
For the quarter, the number of search engine queries the company handled jumped 20% to 2.9 billion, up from 2.4 billion in the third quarter and 1.35 billion a year ago. Sales grew 217% to $26.2 million, up from $8.3 million a year ago, as sales of the company's search engine and Traffic Server networking product were especially robust. Sequentially, sales grew 34%.
Momentum sure isn't a problem for Inktomi. The company's customer list reads like a who's who of fast-moving companies: AOL (NYSE: AOL), Cisco (Nasdaq: CSCO), Intel (Nasdaq: INTC), Microsoft (Nasdaq: MSFT), Sun Microsystems (Nasdaq: SUNW). In the latest quarter, the company expanded its relationships with AOL, Excite@Home (Nasdaq: ATHM), and Microsoft.
But the stock sunk 15% to $104 1/16 this morning when Merrill Lynch (NYSE: MER) Internet analyst Henry Blodget downgraded the stock to 'neutral' from 'accumulate.' Blodget expects the company to report much wider than expected losses next year as it increases spending to spur growth. A company official said the losses are in line with expectations, and noted that it has actually reduced net losses for the last six quarters.
This kind of volatility shouldn't surprise Inktomi investors. For the year, the stock (adjusted for a split) has ranged from a low of $37 15/16 to a high of $159 1/8, with plenty of hills and valleys in between.
There's nothing wrong with a young company spending money to spur growth. After all, first movers have to quickly grab market and set up barriers to competition to stake a claim. Profitability, they argue, should be put on the backburner to stave off rivals from climbing faster. Amazon.com (Nasdaq: AMZN), the biggest name in e-commmerce, has used this strategy well to firmly establish its position as the Web's leading retailer.
At the same time, the growth has to be carefully managed, and Inktomi's latest income statement and balance sheet raises a question. Accounts receivable -- money the company is owed by customers -- grew 352% over the last year, compared to sales of 217%. Ideally, receivables would grow at the same rate or slower than sales. Receivables now stand at $23 million, however, and relative to total sales this number is not at all out of whack.
The question is whether the increase represents a growing trend. An Inktomi official said this isn't the case. The company said receivables stood at 79 days for the quarter, which is toward the high end of its normal range as a result of rapid growth, particularly overseas. Since the numbers are still relatively small, the company said, a few slow accounts can widely skew the picture.
Fair enough. Investors should keep an eye on this trend, however, as it's a key measure of operational discipline.
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Nokia Continues to Lead
Bill Mann (TMF Otter)
-- Nokia (NYSE: NOK), the world's largest manufacturer of cellular phones, announced its third quarter results on Thursday, highlighted by 45% growth in sales and 38% growth in net income over the same quarter in 1998. Jorma Ollila, the Nokia CEO, stated in the company's quarterly conference call that he expected the company's annual growth rate to exceed 40% for the fiscal year 1999.
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Electronic Arts' Powerful Quarter
Dave Marino-Nachison (TMF Braden)
-- As Fools know well, individual investing shouldn't be a competitive endeavor. "Oh yeah? Well, I'm up 300% this week," sounds a lot like "nanny nanny boo boo" to me. What's really important, of course, is generating wealth over time on one's own terms and within one's own abilities. All of that goes out the window, however, when it comes to the fine art of Foolish Dueling -- and that's why I'm going to try and apply the coup de grace to my colleague Rick, finishing off Wednesday's Electronic Arts (Nasdaq: ERTS) Duel with a final thrust.
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Gillette Braces Investors for Harsh Q4
Richard McCaffery (TMF Gibson)
-- Shareholders hoping that razor blade and Duracell battery company Gillette (G: NYSE) might pull out of its slump and report a brighter outlook for the rest of 1999 got a splash of cold water last night as the company warned investors to expect a tough fourth quarter. Gillette expects Q4 sales to decrease around 5% and earnings to fall in the middle to high teens as the company reduces inventory to realign levels with weak international markets and leaner operating practices in the industry overall.
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