Ups and Downs Plus Top News (QuickNews) November 5, 1999

Motley Fool QuickNews

Friday 11/05/99

Closing Market Numbers

DJIA        10704.48  +64.84    (+0.61%) 
S&P 500      1370.23   +7.59    (+0.56%)
Nasdaq       3102.29  +46.34    (+1.52%)
Russell 2000  442.41   +2.51    (+0.57%)
30-Year Bond     101  +22/32  6.05 Yield

Today's Market Movers:


Wireless CDMA technologies developer Qualcomm (Nasdaq: QCOM) jumped $30 7/16 to $294 3/8 after Deutsche Banc Alex. Brown analyst Brian Modoff reiterated his "strong buy" rating and boosted his 12-month price target to $320 per share from $250 per share. Maybe Modoff should have made that a 12-hour price target, as Qualcomm ended the trading day a mere 9% from the higher price estimate.

Internet and Web hosting server appliances maker Cobalt Networks (Nasdaq: COBT) rocketed $106 1/8 to $128 1/8 after selling 5 million shares in an initial public offering at a price of $22 per share. Wireless communications outsourced services firm Wireless Facilities (Nasdaq: WFII) jumped $47 to $62 on its first day of trading, while online grocer Webvan Group (Nasdaq: WBVN) moved up $9 7/8 to $24 7/8 after its much-awaited (and delayed) IPO.

Wireless communications and semiconductor maker Motorola (NYSE: MOT) gained $7 13/16 to $114 5/16 after reportedly saying on a conference call with analysts that it sees the overall chip industry growing in the high teens next year, with Motorola's growth outdistancing that rate, according to Reuters.

Back-office and front-office applications developer Deltek Systems (Nasdaq: DLTK) was lifted $3 3/16 to $13 15/16 after announcing that its board has authorized the repurchase of up to 500,000 of its outstanding shares.


Financial news and information website operator (Nasdaq: TSCM) was steamrolled for a $2 1/8 loss to $16 7/16 after Chairman and CEO Kevin English resigned. President and COO Thomas Clarke (no relation to Bobby) will become the new CEO while board member Fred Wilson (no relation to Flip) will assume the chairmanship.

Entertainment and media giant Disney (NYSE: DIS) dropped $2 3/16 to $24 5/16 after reporting that net income (excluding restructuring charges) for the fiscal fourth quarter fell 37% to $212 million, or $0.10 per diluted share, as revenue declined and costs continued to be a problem. The company expects hard times to continue at least through the first half of fiscal 2000. "It's impossible to predict the day that growth will be back," Chairman Michael Eisner reportedly said during a conference call. "I think it's coming, but it's not coming tomorrow" (regardless of what Little Orphan Annie might think).

Die-cast racing car and memorabilia company Action Performance Companies (Nasdaq: ACTN) was wrecked for a $8 9/16 loss to $14 1/16 after saying the delayed recognition of $8 million in promotional sales until fiscal Q1 of 2000 will lead to fiscal Q4 EPS between $0.30 and $0.33, missing the First Call mean estimate of $0.68.

Furniture rental firm CORT Business Services (NYSE: CBZ) was cut $1 5/16 to $19 1/2 after the company terminated its merger agreement with a management-led private investor group due to "insufficient support" from shareholders and weakness in the high-yield debt market.

Today's Top Stories:

Teligent Leaps on Lucrative Deal
By Richard McCaffery (TMF Gibson)

Local, long distance, and Internet communications provider Teligent (Nasdaq: TGNT) soared more than 30% this morning after an investment group led by Microsoft (Nasdaq: MSFT) took a 14% stake in the broadband wireless venture.

Seems it's good for business when a company with a $471 billion market value endorses your strategy. Go figure.

Under terms of the agreement, Microsoft, private equity firm Hicks, Muse, Tate & Furst, and other partners will invest $500 million to help Teligent expand its national network and jump-start its international business. Microsoft and Hicks will each receive $200 million worth of Teligent convertible preferred stock at a conversion price of $57.50, a 28% premium to Teligent's average closing price for the last five days.

The deal gives Teligent enough capital so that it won't have to worry about raising money until sometime in 2001, at which point it should be offering bundled communications services in over 700 cities in the U.S. The Vienna, Virginia-based company has raised over $2 billion so far and expanded its network to more than 520 cities across the country.

It's not Microsoft's first investment in a broadband communications company. In May, Microsoft invested $5 billion in AT&T (NYSE: T) in return for an agreement to supply software for millions of AT&T's latest cable set-top boxes.

Call it enlightened self-interest. More consumers on the Web means more action for Microsoft's search engine, and more eyeballs on its suite of websites. It's a Microsoft world.

But right now there isn't sufficient infrastructure to get everyone hooked up at high speed. That's where Teligent comes in. The company offers a full line of communications services by putting small antennas on rooftops that send and receive signals from local base stations.

The network offers connections at speeds up to 100 times faster than dial-up modems, and because the system is wireless it doesn't cost as much to deploy as fiber, or as much to upgrade and maintain as existing telephone lines. In many cases, Teligent offers services at a 30% discount to competitors, according to the company.

Teligent's strategy is to pursue the under-served small and mid-sized business market -- typically companies with 5 to 500 phone lines -- since these companies can't afford pricey broadband services. Within this segment, Teligent is focusing on local exchange services, a $51 billion slice of the $128 billion business communications market.

Formed in 1997 and faced with building out an extensive network, the company is losing money faster than day traders. Last year, it had sales of $1 million and reported a net loss of $281 million. This year, however, Standard & Poor's expects revenue of $35 million, and expects it to be cash flow positive by the beginning of 2001.

No question Teligent is a risky play. In addition to unprofitability and a limited operating history, it competes in a booming market with long distance carriers such as MCI WorldCom (Nasdaq: WCOM), incumbent local exchange carriers like Bell Atlantic (NYSE: BEL), competitive local exchange carriers like WinStar (Nasdaq: WCII), and even utilities.

It's also unclear at this point how well its technology will compete in the long run since innovations change the landscape. For example, many phone companies are enhancing copper telephone networks with digital subscriber line (DSL) technology. "We may not be able to compete effectively with these enhancements," the company said in its annual report.

Based on rapidly growing sales and its rate of entry into new markets, however, the results look promising. It's reasonable to assume, too, that investments from Microsoft as well as Nippon Telegraph and Telephone (NYSE: NTT) and other communications industry heavyweights give it an edge.

Let's be conservative and say Teligent captures 2% of the $51 billion local exchange market. This is no certainty, but it's possible. That would give the company annual sales in the $1 billion range, which means there's a boatload of upside potential.

Though the communications industry is a complicated, competitive business, it's worthwhile (in this Fool's opinion) for investors to brush up on at least the basics, not just as potential shareholders but as consumers.

As deregulation takes hold and competition increases, consumers get to choose which carriers provide local, long distance, Internet, cable, and even satellite communications services. The more you know, the better your choices. Did you know that a significant portion of Americans think AT&T currently provides their local phone service? Wrong. Ma Bell is just starting to move into local markets.

Start slow, get up to speed, save a few bucks, and maybe even find a good investment or two. Here are a few links to get you started.

AT&T's Offspring
What is ADSL?
A Glossary of Telecommunications Terms

Navigant: Finding Its Way?
By Dave Marino-Nachison (TMF Braden)

Following the daily twists and turns of virtually any stock is a pretty pointless endeavor for a Foolish investor, but in the case of management consulting company Navigant (NYSE: NCI) the shares' movements over the last several weeks have been painted in strokes that make for a pretty fascinating story.

Today, Navigant's shares rebounded slightly from yesterday's sharp fall of nearly 40% as the company attempted to recapture some of the credibility many on Wall Street and elsewhere feel has been squandered.

It's been one thing after another at Navigant of late. (Here's a chart to set the stage.)

The shares started their nosedive in the middle of last month when the company disappointed some speculative investors by saying it wasn't going to go ahead with the merger opportunities that were on the table, citing "our unique franchise, strong profitability and prospects for the future" as reasons to stay independent.

A late October story in Barron's made matters worse: Writer Barry Henderson said some believe Navigant's revenue growth has been misinterpreted by many investors because it counts incremental revenue from "immaterial acquisitions," which don't require a restatement of financial results. The article also questioned the company's ability to hang on to key personnel brought on through acquisitions.

Yesterday's collapse came after the company disclosed during its earnings conference call that it loaned CEO Robert Maher about $10 million for a personal real estate transaction -- although a company spokesman told Bloomberg that Maher took the loan because he couldn't sell company stock at the time with Navigant in merger talks. Also at issue may be the price Navigant paid for Baltimore-based PENTA Advisory Services, a financial and economic consulting company bought last month.

Today's move is probably related to the company's official response to yesterday's carnage: Navigant said it was "unaware of any undisclosed corporate activities or developments" behind the stock's fall and instead blamed an analysts' downgrade -- reportedly that of Merrill Lynch's Thatcher Thompson, who suggested that Navigant should cool it with the acquisitions and buy back stock instead -- that stemmed from the aforementioned call.

Perhaps not coincidentally, Navigant also said it yesterday bought back "a substantial amount" of its shares on the open market "based upon yesterday's market activity and its confidence in the future," and suggested that more buybacks could be forthcoming.

And Navigant today insisted that it is "comfortable" with analysts' expectations for "the future": At least one brokerage got behind the company today when Robertson Stephens' Steven Birer said Navigant "is suffering from a deluge of negative incidents, some self-inflicted, which are all peripheral to the company's business opportunity" and won't have a long-term effect on the stock.

But Navigant stock still has a lot of ground to make up following the abrupt fall of the last several weeks. By giving itself a benchmark of sorts in the form of forward earnings guidance, the company has established a first step for regaining the investor confidence that's been lost.

More of Today's Best:

FOOL ON THE HILL An Investment Opinion
Bad Reasons to Sell
By Bill Mann (TMF Otter)
-- For this installment of the Fool on the Hill, I'm going to play lightning rod and put forth a few highly controversial theories on portfolio management. These theories are, by and large, completely in conflict with many of the most widely accepted "truths" in personal financial management. All of these rationales ignore a basic function of individual stock selection. That is, a Foolish investor has gone through and tirelessly done research on the fundamentals of the individual company, and has decided that it provides a better-than-average chance for a superior return. Why in the world would the same investor make sell decisions without re-examining the same criteria with which he or she bought? The answer is, they do it all the time.

One Prescription Too Many
By Richard McCaffery (TMF Gibson)
-- Pharmaceutical company Warner-Lambert's (NYSE: WLA) board of directors last night decided to stick to its guns and proceed with the $72 billion merger agreement reached yesterday with American Home Products (NYSE: AHP). The deal, the largest in the history of the pharmaceutical industry, will create the world's largest pharmaceutical company, a giant called AmericanWarner Inc. with $26 billion in annual sales, a $3 billion research and development budget, and a market value of nearly $145 billion. Products sold by the combined companies include Advil, Listerine, Robitussin, and the cholesterol-busting sensation Lipitor, which rings up more than $3 billion in annual sales. As one door opens, however, another closes. Warner-Lambert is walking away from an $82.4 billion hostile bid proposed by drug giant Pfizer (NYSE: PFE).

FOOL PLATE SPECIAL An Investment Opinion
Steinway Keys on Band Orders
By Dave Marino-Nachison (TMF Braden)
-- Shares of well-known piano maker Steinway Musical Instruments (NYSE: LVB) tuned up a bit in the first half of 1999 after finding their way onto the playlists of many investors who liked the company's strong brand position, reliable earnings growth, and consumer acceptance not only in the piano business but in brass instruments and Ludwig brand drums. Many probably also believed that the company was a bit oversold on worries about sales weakness in Asia, which have historically made up less than 10% of the company's sales. But the stock peaked around $27 per share in June and has since fallen steadily to its lowest levels since 1997. Now it looks like the shareholders are due for further disappointment.

Speedway Motorsports Spins Out
By Brian Graney (TMF Panic)
-- Race track operator Speedway Motorsports (NYSE: TRK) blew a tire and crashed headlong into the wall this morning after warning that it will report a loss for the third quarter. The company said its core NASCAR stock car operations continue to hum right along, pulling in record revenues and attendance figures. However, the other portions of the company's business have stalled, leading to quarterly earnings some $6 million short of expectations. Farther down the track, the company expects the same negative factors to weigh down Q4 net earnings by about $3 million. As a result, the company's shares were torched for a 35% loss this morning.