Boring Portfolio

Boring Portfolio Report
Tuesday, May 6, 1997
by Greg Markus (TMF Boring)

ANN ARBOR, Mich. (May 6, 1997) -- The Boring Portfolio enjoyed a 0.22% gain in net asset value Tuesday, beating the market benchmarks. Five boring holdings advanced, while four declined.

The day was marked by quarterly earnings reports: from OXFORD HEALTH (Nasdaq: OXHP) this morning and from CISCO SYSTEMS (Nasdaq: CSCO) after the close of trading late this afternoon.

Oxford rose $2 3/8 on strong volume, which suggests that the report was a good one -- and indeed it was. Earnings of $0.42 per share topped analysts' consensus projection by two pennies. More importantly, CEO Steve Wiggins outlined the company's success in managing internal costs while continuing to grow membership -- and thereby the top line -- at a breathtaking pace.

The lead from the Dow Jones story on Oxford's results says it all: "Oxford Health Plans Inc., one of the most successful health maintenance organizations in the country, said Tuesday its net income for the first quarter surged 85.7% while revenue doubled."

Actually, it doesn't begin to say it all, so The Motley Fool will provide a synopsis of the company's conference call for you tomorrow.

As for Cisco, their conference call lasted nearly two hours and ate well into my time to prepare tonight's recap. So I'll offer you the following comments from that call, and provide a more detailed report tomorrow, as well.

Here goes:

After the close of market, Cisco reported its third quarter results for the period ending April 26, 1997. Net sales for the quarter increased 52% over last year, to $1.65 billion. Net income, excluding a one-time gain of three cents, was $358.0 million or $0.52 per share. The EPS figure represented a 41% increase over Q3 of 1996.

In each quarter's conference call, Cisco devotes a substantial portion of their presentation to a discussion of a specific topic. This time, CEO John Chambers described Cisco's recent realignment of its business around three key customer segments: enterprise, service providers, and small/medium businesses.

The argument Chambers presented was that Cisco's former product-oriented focus was very useful for getting the company to where it is now, but that a reorientation directed toward customer needs, which may span a variety of products, is more compatible with Cisco's emphasis on providing end-to-end solutions.

Another key theme of the call was the growing importance of strategic partnerships -- such as ones already announced with such partners as INTEL (Nasdaq: INTC), MICROSOFT (Nasdaq: MSFT), and HEWLETT-PACKARD (NYSE: HWP) and the one announced today with GTE (NYSE: GTE). Chambers said he is of the opinion that strategic partnerships will be as important to Cisco's future growth as acquisitions were to its past.

This was not to say that Cisco would be slowing its buying binge noticeably -- indeed, the guidance was to expect 8 to 12 acquisitions this year. But the clear message was that Cisco, and its partners, see significant advantages to pursuing initiatives jointly -- such as in multimedia, for example -- rather than trying to go it alone.

As for the GTE partnership, GTE said in its press release that its joint effort with Cisco to dramatically ramp up GTE's network offerings for customers could bring as much as $1 billion in business to Cisco over the next five years.

One other piece of news is that Cisco's board approved the repurchase of 5.0 million shares of stock "to be used to meet several of the Company's common stock requirements, including its employee stock plans." Because of the need to keep the deck clear for future acquisitions, Cisco management said that this repurchase would be done "quickly."

Of course, new products were a major item of interest among analysts. Cisco will be showing its new Gigabit Switch Router and multimedia products at the Las Vegas trade show, which opened today. Tag-switching will also be demo'd there.

In terms of guidance, Cisco pointed out that sales in April were strong and linear throughout the month and that the current quarter tends to be a strong one historically. Also, there is some suggestion that markets are finally "bottoming out" in Japan and Germany, which have been weak. All of this -- together with good control over internal business costs -- bodes well for Q4; but with leads times as short as one to three weeks between order and shipment, it is hard to forecast final results with accuracy.

At present, management suggests that analysts retain their expectations of single-digit sequential growth in revenues. Gross margins held fast at 65.3% from Q2 to Q3, but that can fluctuate from quarter to quarter, and in the long run, Cisco continues to expect that margins will decline (as they inevitably do in every area of technology). The company maintains that the 30-50% annual revenue growth projections of industry pundits continue to look reasonable.

Based on this quarter's $0.52 in earnings, that suggests that current projections of $0.56 are plausible, which would be a 33% gain over last fiscal year's fourth quarter.

(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  +  1/4   29.50
BGP   +  1/8   20.75
CSL   -  3/4   29.38
CSCO  -  7/8   57.75
GNT   -  5/8   30.25
ORCL  -  7/8   43.88
OXHP  +2 3/8   66.75
PMSI  +  1/2   10.25
TDW   +  1/2   40.00
                   Day   Month    Year  History
        BORING   +0.22%   3.57%  -0.50%  14.50%
        S&P:     -0.29%   3.30%  11.75%  33.16%
        NASDAQ:  -0.82%   5.36%   2.89%  27.60%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     20.75    84.34%
  5/24/96  100 Oxford Hea    48.02     66.75    38.99%
   3/5/97  150 Atlas Air     23.06     29.50    27.94%
  8/13/96  200 Carlisle C    26.32     29.38    11.59%
  6/26/96  100 Cisco Syst    53.90     57.75     7.14%
   3/8/96  400 Prime Medi    10.07     10.25     1.80%
   2/2/96  200 Green Tree    30.39     30.25    -0.45%
 11/21/96  100 Oracle Cor    48.65     43.88    -9.81%
           100 Tidewater     46.52     40.00   -14.02%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   8300.00  $3797.51
  5/24/96  100 Oxford Hea  4802.49   6675.00  $1872.51
   3/5/97  150 Atlas Air   3458.74   4425.00   $966.26
  8/13/96  200 Carlisle C  5264.99   5875.00   $610.01
  6/26/96  100 Cisco Syst  5389.99   5775.00   $385.01
   3/8/96  400 Prime Medi  4027.49   4100.00    $72.51
   2/2/96  200 Green Tree  6077.49   6050.00   -$27.49
 11/21/96  100 Oracle Cor  4864.99   4387.50  -$477.49
 12/23/96  100 Tidewater   4652.49   4000.00  -$652.49
CASH $7660.41 TOTAL $57247.91