OUR TAKE
The Motley Fool Take on Tuesday, Jan. 15, 2002
Tyco, E*Trade, and the Online Banking Biz

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The major stock market indices drifted upward to finish in positive territory today in advance of some bellwether earnings reports due out this week. If you're investing in individual stocks, you should at least check up on them each quarter. Now's the time to get some preliminary numbers in advance of SEC filings to follow.

Chipmaker Intel (Nasdaq: INTC) and Internet garage sale eBay (Nasdaq: EBAY) reported earnings after the bell today, and both topped estimates. Intel's results reflected better-than-expected holiday PC sales, and eBay -- continuing its string of profitable quarters -- said it expects to earn $0.32 to $0.33 a share in the first half of 2002.

On Wednesday Yahoo! (Nasdaq: YHOO), Apple Computer (Nasdaq: AAPL), and J.P. Morgan Chase (NYSE: JPM) report. Then on Thursday look for earnings from IBM (NYSE: IBM), Sun Microsystems (Nasdaq: SUNW), Microsoft (Nasdaq: MSFT), Nortel (Nasdaq: NT), Ford  (NYSE: F), and Citigroup (NYSE: C).

There will be lots more in the coming weeks. So, sit down with some popcorn -- extra butter and salt, please -- and take in some of the earnings news from your favorite companies.

The Motley Fool 50 Index gained about 1% today.

In today's Motley Fool Take:

Tyco's Tepid Outlook

After years of gluttony, Tyco International (NYSE: TYC) is coming down with a bit of indigestion. The conglomerate, often referred to as a miniature version of General Electric (NYSE: GE) because of its ability to acquire both industrial and financial components, topped first quarter estimates but said results for the current second quarter will come in below expectations.

The near-term concern centers around the "Electronics end markets," which is the largest division of the $90 billion Bermuda-based behemoth. Revenue for that segment dropped 19% from the same period last year, and gross margin dipped from 24.4% to 19.8%. That caused actual profit in Electronics to fall off 34%. It could have been worse; the company said the lower margin was partially offset by cost reduction programs.

Although the second-quarter guidance "reflects continued uncertainty about the near-term outlook for the Electronics end markets," CEO Dennis Kozlowski seems pleased with the performance of the other segments, particularly Fire and Security, which showed strong revenue and earnings growth.

We'll also take this opportunity to praise Tyco for its extremely detailed earnings releases. It's nice, verrry nice, to get not only an income statement but also a detailed balance sheet (many companies offer only an abbreviated version until the actual 10-K or 10-Q is released), and even a basic cash flow statement (extremely rare). In addition, the company offers detailed free cash flow discussion and forecasts.

Bravo, Tyco! If only every company would follow suit and treat their investors with such respect.

Fear Boosts Online Banking Biz

The anthrax scare turned out to be a boon for banks. With snail mail suddenly posing a lethal threat, wary consumers took the plunge into online banking in record numbers. According to latest edition of Consumer Reports, some banks reported as much as a 20% increase in enrollment in their electronic services between September and November of last year.

In its latest issue, the consumer watchdog rag rates 15 of the biggest banks on key features such as the cost of bill paying; ease of opening an account; privacy; navigation; low-balance warnings. (You can see the ratings criteria and results for free at www.ConsumerReports.org. The full report is available only to subscribers) The biggest differences were found in fees and services (such as the ability to view your account history and present bills online). Etrade (etrade.com) and Citibank (citibank.com) came in first and second in the reviews.

If you're looking to go digital, Consumer Reports has some advice for you. First of all, it's nearly impossible to get truly free online bill payment. The truth is, as researchers found, banks'll get ya someplace in fees, or with a minimum balance requirement that most of would have to rob a bricks-and-mortar bank to meet.

Secondly, just because you're signing up with a bank -- you know, a reputable, upstanding organization and all that -- doesn't mean that they won't bandy about your e-mail address like a drunken sailor on a two-day leave. Banks can legally share your information with affiliates (via Gramm-Leach-Bliley legislation), meaning that you can expect a barrage of solicitations for investment and insurance products after simply signing up for an online checking account.

The biggest concern among consumers -- and the one that keeps many from signing up for online banking -- is site security. Thankfully, security breaches are about as rare as receiving an anthrax-laden letter these days. In fact, your mailed check is much more vulnerable to a ne'er-do-well than your online banking transactions. Almost all online banking service come with 128-bit encryption, password access, fire walls, and virus-detection programs.

We'll give Fools the final say in this pro/con world of digital banking: Get some straight-from-the keyboard advice from the folks on our Online Banking discussion board.

E*Trade's Diversification Paying Off

Online brokerage E-Trade (NYSE: ET) last night reported fourth-quarter net income of $24.7 million, or $0.07 per share, compared with $6 million, or $0.02 a share, in the same period last year. Analysts were looking for earnings of  $0.04 per share. Revenue increased 3.3% to $345 million.

The discount broker also said it's comfortable with the current consensus estimate for first-quarter earnings per share of $0.07, and raised its earnings target for fiscal year 2002 to an EPS of $0.45 to $0.55.

Since brokers rely on healthy markets to stir up trading activity, is the company expecting the market to continue its healthy bounce through the rest of the year? Hardly. During a conference call, CEO Christos Cotsakos said, "We're taking a very conservative view of the brokerage business. We think it's going to be very choppy and unpredictable."

E-Trade's better-than-expected results and optimistic outlook are due to its strategy of offering more financial services to its clients and its $53 billion asset base. Besides brokerage services, the company also offers loans, ATM access, and other banking services. This morning, E*Trade announced a partnership with inviva to provide term life insurance. The company has even opened up "E*Trade Zones" in some super-sized Target (NYSE: TGT) stores. And some analysts expect E*Trade to eventually enter the credit card business.

E*Trade's mortgage business did particularly well in the fourth quarter, producing $33 million in revenue, a 17.9% sequential jump. The company has also cut costs, decreasing its advertising budget and reducing its number of employees by 15%.

Based on the stock price's recent appreciation, investors seem to appreciate E*Trade's diversification strategy. E*Trade stock closed yesterday at $12.20 after being as low as $4.83 on Sept. 21. The huge short-term return led two analysts to downgrade the stock today, based mostly on valuation.

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Check it out and imagine the new you walking around secure in the knowledge that your portfolio is up-to-date, profitable, and lookin' good.

Quick Takes

In a world where it often comes down to paper or plastic, consumers are choosing plastic. Credit card processor Total System SVCS (NYSE: TSS) reported its 19th consecutive quarter of record profits. For the year, TSYS saw its bottom line grow by 20% and is committed to growing earnings by 20% in the year ahead as well. The company is majority-owned by Synovus Financial (NYSE: SNV).

Maybe Little Orphan Annie is wrong. Maybe the Sun won't come out tomorrow. CS First Boston has lowered its profit outlook for Sun Microsystems (Nasdaq: SUNW). For the year, analyst Amit Chopra is looking at a loss of $0.14 a share on just $12.4 billion in revenue for the workstation specialist and Java-maker.  

Golden arches indeed. UBS Warburg initiated coverage of various eating establishments, singling out McDonald's (NYSE: MCD) as a Strong Buy. The world's largest fast food chain has been out of favor recently, with its shares sliding like Ronald McDonald on a lard-greased floor. So is UBS ordering to go, holding the pessimism? After watching profits dip into the fry vat in 2001, earnings should climb by 10% this year. No Grimace there if things go according to plan.

After the holiday shopping season was all wrapped up, pretty bow and all, it didn't look so bad. The U.S. Commerce Department reported that retail sales fell by a scant 0.1% in December. Helping offset sluggish chopping patterns elsewhere were discount retailers and restaurants -- two sectors profiled in the latest edition of Industry Focus

We can't all be Jed Clampett. Rowan (NYSE: RDC) had a rough go this past quarter in the offshore drilling market. Revenue fell by 26% in the fourth quarter as the company reported a loss of a dime a share. With depressed day rates and an abysmal 60% utilization rate in the Gulf of Mexico, the climate for striking oil isn't as hot as it used to be.

Accounting firm Arthur Andersen, which last week admitted to destroying some Enron (NYSE: ENE) documents, fired the lead auditor in the case and placed three other partners on leave. In a statement, the company said it found "that at the direction of the lead partner an expedited effort to destroy documents in Houston was undertaken."

And Finally...

Today on Fool.com: The Rule Breaker team reveals their hopes for some of the Portfolio's holdings in the coming year.... A Fool takes an elementary look at conglomerate Johnson & Johnson.... Rick Munarriz has issues (don't we know it) with what he sees as biotech mania.

Contributors:
Brian Bauer, Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Dayana Yochim

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