Boring Portfolio

Boring Portfolio Report
Thursday, April 24, 1997
by Greg Markus (TMF Boring)

ANN ARBOR, Mich. (April 24, 1997) -- After being up by as much as 17 points earlier in the session, the Nasdaq finished less than a point above yesterday's close. The Dow and S&P 500 each lost around a third of a percentage point.

The Boring Portfolio split the difference, losing 0.23%. Three Borefolio holdings rose, five declined, and one was "unch."

It was "another day, another clobber" for GREEN TREE FINANCIAL (NYSE: GNT), as the stock fell $3/4 to close at $29. Trading volume was a massive 4.5 million shares. That included an arranged trade at $28 of a 595,000-share block late in the session. Earlier in the day, GNT fell as low as $27 1/2, a new 52-week low.

A week ago, Green Tree reported revenues up 59%, EPS up 35%, beat analysts' forecasts, and demonstrated that it continues to manage its loan portfolio with admirable prudence. Despite that, the stock's been pruned to within an inch of its life as some large holder or holders have apparently decided to climb down from the Tree.

In yesterday's Borefolio recap, I relayed reports of analysts' concerns about the way an obscure new accounting rule, SFAS 125, might be affecting the quality of earnings for some financial institutions. On Wednesday, for example, THE MONEY STORE (Nasdaq: MONE) and UNITED COMPANIES (NYSE: UC) got whacked for just that reason: analysts suspected that SFAS 125 helped plump the companies' earnings artificially.

Green Tree may be getting clipped for a similar reason. If so, then it's entirely inappropriate, according to Green Tree executives.

WARNING: If accounting minutiae bring on for you an acute case of MEGO ("My Eyes Glaze Over"), you might want to skip past the next few paragraphs -- and perhaps I'll join you. But if you've got the stamina for it, here goes:

In a nutshell, SFAS 125 requires a change from past practice in the way companies value certain financial assets on their books. In the case of, say, The Money Store the impact of SFAS 125 is that variations in prevailing interest rates will affect the company's income statement -- either up or down, depending on which way the discount rate goes. The resulting uncertainty about earnings is why analysts squinted when reading Money Store's latest quarterly earnings report.

In Green Tree's situation, however, a company spokesman explained to me (and I more or less followed the major contours of the explanation) that to the degree SFAS 125 affects Green Tree at all, it does so primarily in the company's balance sheet -- in the calculation of the company's equity -- rather than in the income statement.

During Green Tree's conference call last week, company execs said that the net impact of SFAS 125 would be approximately a $15 million pre-tax offset to equity (which stood at $1.33 billion at the end of the quarter). Hardly a big deal.

In addition, SFAS 125 would reduce -- reduce, not fatten -- the company's earnings by ten to fifteen cents per share for 1997. Even with that reduction, the company remains comfortable with analysts' consensus EPS estimate for the year, which stands at $3.01 according to First Call. If Green Tree should achieve those earnings, it would constitute an impressive 37% advance over 1996.

UNWARNING: You folks who skipped over the Green Tree accounting stuff can rejoin the recap now. Let's take a quick look at a couple of today's Borefolio winners.

ORACLE (Nasdaq: ORCL) tacked $1 5/8 onto yesterday's $2 1/2 leap, as favorable news continues to stream in from the business software front. Yesterday, it was a fine report from PEOPLESOFT (Nasdaq: PSFT). Today, applications artist BAAN (Nasdaq: BAANF) sported some fine quarterly numbers, and COMPUTER ASSOCIATES (NYSE: CA) alerted the Street that their earnings for their March quarter will exceed analysts' estimates. In addition, Computer Associates said that they are seeing signs of a turnaround in the notoriously weak European market.

Finally tonight, ATLAS AIR (Nasdaq: ATLS) reported its quarterly results this morning, and they were just dandy. Operating earnings of $0.26 per share, excluding a one-time charge, topped the consensus estimate by a nickel. The stock rose fifty cents, to $25 1/2 on volume exceeding one million shares.

The company reported that it has added two aircraft into service during the current quarter, will add another in Q3, and two more in Q4.

In addition, expenses are coming down as the company appears to have gotten control of the higher than anticipated operating costs associated with five aircraft it leased from Fed Ex last year. Those leases expire in January 1998, by the way. The company has not decided yet whether it will renew the leases or not. But if they don't renew, they expect to replace the aircraft. In any case Atlas expects to increase its fleet by a net four or five aircraft in 1998.

The Motley Fool will provide a synopsis of Atlas Air's follow-up conference call tomorrow.

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Stock  Change    Bid
ATLS  +  1/2   25.50
BGP   +  1/8   21.38
CSL   -  1/2   27.38
CSCO  -  1/4   48.25
GNT   -  3/4   29.00
ORCL  +1 5/8   39.38
OXHP  -  1/2   61.25
PMSI  ---      8.94
TDW   -  7/8   47.63
                   Day   Month    Year  History
        BORING   -0.23%  -0.59%  -5.22%   9.07%
        S&P:     -0.32%   1.86%   4.11%  24.06%
        NASDAQ:  +0.08%   0.52%  -4.87%  17.98%

     Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     21.38    89.89%
  5/24/96  100 Oxford Hea    48.02     61.25    27.54%
   3/5/97  150 Atlas Air     23.06     25.50    10.59%
  8/13/96  200 Carlisle C    26.32     27.38     3.99%
   2/2/96  200 Green Tree    30.39     29.00    -4.57%
  6/26/96  100 Cisco Syst    53.90     48.25   -10.48%
   3/8/96  400 Prime Medi    10.07      8.94   -11.24%
 11/21/96  100 Oracle Cor    48.65     39.38   -19.06%
 12/23/96  100 Tidewater     46.52     47.63     2.36%

     Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   8550.00  $4047.51
  5/24/96  100 Oxford Hea  4802.49   6125.00  $1322.51
   3/5/97  150 Atlas Air   3458.74   3825.00   $366.26
  8/13/96  200 Carlisle C  5264.99   5475.00   $210.01
   2/2/96  200 Green Tree  6077.49   5800.00  -$277.49
   3/8/96  400 Prime Medi  4027.49   3575.00  -$452.49
  6/26/96  100 Cisco Syst  5389.99   4825.00  -$564.99
 11/21/96  100 Oracle Cor  4864.99   3937.50  -$927.49
 12/23/96  100 Tidewater   4652.49   4762.50   $110.01
CASH $7660.41 TOTAL $54535.41