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Closing Market Numbers
DJIA 11035.70 +152.61 (+1.40%)
S&P 500 1424.94 +14.23 (+1.01%)
Nasdaq 3347.11 +77.72 (+2.38%)
Russell 2000 462.04 +4.97 (+1.09%)
30-Year Bond 99 14/32 -15/32 6.17 Yield
Today's Market Movers:
PC and computing products maker Compaq (NYSE: CPQ) ran up $1 5/16 to $25 1/16 after forming a global partnership with Britain's Cable & Wireless (NYSE: CWP) to offer small- and medium-sized businesses "complete end-to-end e-business solutions." The two firms plan to chip in a total of $500 million over the next five years, with Compaq's participation including revenue sharing and traditional supplier contracts.
Hewlett-Packard (NYSE: HWP) spin-off and test, measurement, and monitoring systems maker Agilent Technologies (NYSE: A) rose $10 to $40 in its first day of trading after offering 72 million shares at a price of $30 a pop. In other IPO action, telecommunications software firm MetaSolv Software (Nasdaq: MSLV) gained $36 to $55, electronics and chemicals materials discoverer Symyx Technologies (Nasdaq: SMMX) rose $8 7/16 to $22 7/16, and business-to-business e-commerce retail software maker Retek (Nasdaq: RETK) climbed $17 9/16 to $32 9/16.
Computer systems integrator and hardware company Unisys (NYSE: UIS) moved up $5 5/16 to $30 after naming six new executives as part of its ongoing business reorganization. The company is hoping the new executives will help unify the sales force, decrease customer confusion, and boost sales by 8% to 10% in 2000, according to reports.
Photodynamic therapy products developer QLT PhotoTherapeutics (Nasdaq: QLTI) eyed a $8 5/16 gain to $46 1/8 after an FDA panel recommended approval of the company's Visudyne injection therapy for treating wet age-related macular degeneration, a leading cause of blindness in people over 50. Visudyne was co-developed with the CIBA Vision unit of Novartis.
Internet data and analysis software company Accrue Software (Nasdaq: ACRU) dropped $1 1/4 to $57 3/16 after agreeing to acquire privately held NeoVista Software in a stock deal worth about $140 million. NeoVista, which will become a wholly owned subsidiary of Accrue, makes analytical software for retail, financial, and insurance companies.
Spanish Internet services provider Terra Networks SA (Nasdaq: TRRA) gave back $6 3/4 to $31 1/2 after nearly tripling yesterday in its first day of trading following its initial public offering.
Pressure pumping and oil field services provider BJ Services Co. (NYSE: BJS) was knocked down $3 1/8 to $38 3/8 after Stevens Inc. reduced its rating on the firm to "outperform" from "buy" and Raymond James cut its opinion to "accumulate" from "buy."
Today's Top Stories:
Applied Materials Crushes Expectations
Richard McCaffery (TMF Gibson)
Investors in the semiconductor capital equipment market are a tough crowd to please.
Semiconductor equipment manufacturer Applied Materials (Nasdaq: AMAT) reported fiscal fourth quarter net income (excluding one-time charges) of $307 million, or $0.77 per diluted share, last night, compared to income of $8 million, or $0.02 per share, last year.
The results blew away analyst estimates of $0.64 as sales conditions in Asia continued to improve, prices for memory chips strengthened, and demand for crucial semiconductor products increased. Applied Materials is the world's biggest manufacturer of semiconductor fabrication equipment, kind of the Intel (Nasdaq: INTC) of its crowd.
The worldwide explosion of communications equipment and devices requiring sophisticated microchips has added a deep revenue stream for chip builders and the companies that build the expensive equipment they rely on. Extensive investment and product development over the last two years is helping the company grab market share.
Still, shares of Applied Materials fell more than $3 to $106 5/8 in trading, which is surprising since the company reported a 13% rise in new orders as a result of strong demand from chip makers in the U.S., Taiwan, Europe, and Japan. New bookings stand at a record $1.65 billion.
After last quarter's earnings report, Applied Materials also traded down despite posting solid gains in all categories except new bookings, which grew just 5% sequentially. (Click here for the story).
New bookings are watched closely due to the volatility of supply and demand in the semiconductor industry. Companies like Applied Materials are influenced by the prices of memory chips, economic conditions, and demand for new equipment from manufacturers. The sector has performed well this year after emerging from a wicked slump in 1998.
An analyst at ABN Amro this morning downgraded the stock to "outperform" from "buy," though this rubbed against the grain of prevailing sentiment as analysts at Banc of America and Robertson Stephens reiterated "buy" and "strong buy" recommendations.
The 200% gain in the company's stock over the last 12 months is probably responsible for some of the sell-off as skittish investors looked to cash in on a quick two-bagger. But it's hard to justify the move based on the latest figures.
Both gross margins and net margins increased sequentially and year over year. Gross margins now stand at 50%, with net margins at a very healthy 19.6%. One reason margins are key to investors in this sector is that, as a rule, companies with the best margins are doing the best job differentiating and improving products. Companies that can't offer chip makers the latest technology in this fast-changing field get left behind.
Operating margins slipped slightly, to 23% from 24%, but are still well above the 15% threshold that investors in this industry should look for.
The company also has plenty of working capital, with more than $5 billion in current assets and just $1.7 billion in current liabilities. In the event of a downturn, it has the financial strength to ride out the storm with nearly $3 billion in cash and short-term investments, and just $2.4 billion in long-term liabilities.
For the year, sales grew 20% to $4.86 billion. It's worth noting that the company's growth rate is a lot higher than the industry's growth rate, which means it's grabbing market share. It captured about 21% of the estimated $23 billion semiconductor equipment market in 1999, compared to 18% last year, according to data from the Semiconductor Equipment and Materials Industry, a nonprofit trade association.
Ongoing net income jumped to $748 million, or $1.89 per diluted share, up 79% from $417 million, or $1.10 per diluted share, last year. This was well ahead of analysts' fiscal 1999 estimates of $1.73.
Applied Materials offers investors an alternative way to invest in the semiconductor market. The company is the leading player in a market expected to grow to $50 billion in 2004, up from $23 billion today -- a 17% compound annual growth rate. Applied Materials should be on semiconductor-oriented investors' radar screens.
FOOL PLATE SPECIAL
Safeskin Bailed Out
Brian Graney (TMF Panic)
For stock market hero turned goat Safeskin Corp. (Nasdaq: SFSK), yesterday will go down in the firm's tumultuous history as "exit strategy day." After the close, tissue, personal care, and healthcare products giant Kimberly-Clark (NYSE: KMB) agreed to acquire the troubled maker of powder-free exam gloves in a stock swap valued at $850 million, which includes about $155 million in assumed debt and outstanding stock options.
The price tag values Safeskin's shares at $13.35 a piece based on Kimberly-Clark's closing price yesterday. That works out to a fairly decent 23% premium to Safeskin's recent price of $10 13/16 per share, but a 12% discount to the firm's share price on March 11. What was so special about March 11? That was the date that preceded "shareholder value destruction day," when a massive earnings and sales warning led to a 41% plunge in the company's share price. In the eight months since that infamous day, Safeskin's stock has regained a bit of the lost ground, but the firm's reputation with investors has remained as soiled as a used surgeon's glove.
Safeskin's blowup earlier this year -- which was the subject of a meaty March Fool on the Fool column linked at the bottom of this page -- was a classic example of balance sheet red flags serving as leading indicators of trouble to come. Mis-estimated demand and distributor inventory levels by management (numerous class action-minded law firms allege the figures were not mis-estimated, but purposely misstated) finally came to light in a big way with the March warning, months after a sell-side analyst first brought the potential problems to everyone's attention.
For most of this year, investors have been bailing out of the stock, which had previously racked up an amazing 73% compounded annualized return between its IPO date in November 1993 and its high-water mark in July 1998. In the past few quarters, sales growth has dried up and margins have been eroded as the company has tried to work through pricing pressures and overcapacity problems.
The overcapacity dilemma is especially ironic for longtime Safeskin followers, considering the company often complained during its go-go growth days that it couldn't make its gloves fast enough to satisfy seemingly rabid demand from its customers. As recently as September 1998, President and CEO Richard Jaffe had bragged in an interview with The Wall Street Transcript that the company's products were so popular that the firm would possibly never operate in any other environment outside of persistent undercapacity. "We believe that we can sell everything we make this year, next year, and expand the capacity," he said. So much for that theory.
With the staid Kimberly-Clark now running the show, the days of such windy executive talk appear to be over. The current president of Kimberly-Clark's professional healthcare division will take over the reins at Safeskin, which will join recent acquisition Ballard Medical Products in Kimberly-Clark's fast-expanding disposable medical products business. Jaffe will be relegated to serve the role of a consultant, which basically means that he will be shuffled to an office somewhere and will propose business plans that everyone will pretty much ignore.
Despite the considerable baggage associated with the purchase, Kimberly-Clark believes it is getting good value in return for trading away part of its equity for Safeskin. The Dallas-based giant appears to be willing to wave off the legal issues hanging over Safeskin's head and is focusing instead on the cost savings to be reaped and the added market presence it will gain in the medical products area. But that's little consolation to any high-cost basis Safeskin shareholders who have held on to their stock throughout this extended ordeal, who today received closure in the form of some Kimberly-Clark shares and a hard-earned lesson in the risks of equity investing.
Fool on the Hill, "Safeskin's Lessons," 03/17/99
Fool Plate Special, "Safeskin Skinned by Downgrade," 10/29/98
Safeskin message board
More of Today's Best:
BREAKFAST WITH THE FOOL
A New Day For Hewlett-Packard, Agilent
Richard McCaffery (TMF Gibson)
-- Computer, printer, and related services company Hewlett-Packard (NYSE: HWP) spun off Agilent Technologies (NYSE: A) last night, selling 72 million shares in an initial public offering that netted $2.1 billion. The shares were priced at $30, higher than originally expected as demand for the issue was strong. The company was spun off to allow both companies to focus on core businesses. Also last night, Hewlett-Packard reported fiscal fourth-quarter net income from continuing operations of $760 million, or about $0.75 per share, excluding expenses related to spinning off Agilent. The results were slightly ahead of analysts' reduced expectations of $0.73, according to First Call/Thomson.
FULL STORY >>
FOOL ON THE HILL An Investment Opinion
Microsoft: Why the Market Loves Judge Jackson
Bill Barker (TMF Max)
-- I was at a friend's house two weeks ago on the Friday night that Judge Jackson's Findings of Fact in United States v. Microsoft were handed down. My friend asked if I agreed with the pundits out there who thought that the Judge's Findings could cause an end to the bull market, and that on the following Monday the market could head seriously south. As far as I can make it out, the doom and gloomers' argument was that the stock market so hates any interference in the free market economy by the government that it would read the Microsoft decision as some precursor of massive government regulation into the beloved technology sector. Since, as the argument goes, everybody involved in our Federal Government is too old, stupid, poor and/or power-crazy to understand technology (or the free market), this could only mean disaster. Fast forward two weeks. The market absolutely loves Judge Jackson's Findings of Fact.
FULL STORY >>
NeoMagic's Act Improving
Dave Marino-Nachison (TMF Braden)
-- Shares of notebook computer multimedia accelerator device maker NeoMagic (Nasdaq: NMGC) reversed a short-lived rally today, falling just over 10% after the company turned in fiscal third-quarter (ended Oct. 31) earnings of $0.16 per share, missing last year's $0.33 mark and coming in flat with First Call's three-analyst consensus estimate. Margins were disappointing, production problems continuing to plague the company as they have all year: though operating expenses decreased year-over-year, cost of sales jumped nearly 28%, badly outpacing revenue growth -- 4.4% for the quarter -- and severely hurting profits
FULL STORY >>
Smucker Ready to Jam?
Dave Marino-Nachison (TMF Braden)
-- "With a name like Smucker's," late-night wiseguy Jay Leno once said, "why does it have to be good?" Though not necessarily known as a reliable source of investment advice -- most of Jay's money apparently goes toward collectible cars -- the comedian had a point... and it's one investors in J.M. Smucker (NYSE: SJM.A) would no doubt agree with, given the stock's erratic performance of late. But in a time when many companies in the food products industry are looking to expand through acquisition, Smucker now believes it may be able to better position itself for growth by slimming down. It said today that it's looking over its businesses to target "non-strategic or underperforming" lines. Look for the study to wrap up around the end of January (the close of the company's fiscal third quarter).
FULL STORY >>