Cisco and Butterfat
... both at record highs
by Greg Markus (TMF Boring)
ANN ARBOR, Mich. (June 29, 1998) -- The Boring Portfolio kept pace with the S&P 500 Monday, led by a $1 15/16 gain in shares of Cisco Systems (Nasdaq: CSCO) to $91 13/16. Today's gain establishes yet another new all-time high for Cisco and marks its first-ever close above $90.
The Gigabit Ethernet Alliance today announced that the industry standards group formally ratified the new Gigabit Ethernet standard, thereby giving an installed base of over 120 million network nodes access to a technology that can zip network traffic along at one billion bits per second.
According to industry analysts at the Dell'Oro Group, the demand for Gigabit Ethernet technology is projected to reach $2.2 billion in the year 2001, up dramatically from this year's estimated total revenues of $261 million.
Cisco, of course, is heavily into Gigabit Ethernet, in its 5000-series Catalyst Switches and high-end routers. Click here for more info on Cisco and Gigabit Ethernet.
I received in the mail today the material for the meeting of FelCor (NYSE: FCH) shareholders scheduled for July 27 in Dallas. At that meeting, and a simultaneous one of Bristol Hotel (NYSE: BH) shareholders also occurring in Dallas, shareholders are expected to approve a merger of the two companies.
The merger would more than double the size of FelCor, making it the largest non-paired share REIT in the industry. With the addition of Bristol's 110 owned and leased hotels added to FelCor's 85 properties, the new FelCor would hold a portfolio of 80 upscale all-suite (primarily Embassy Suites and Doubletree Guest Suites), 31 upscale full service (mostly Crowne Plazas), and 62 full service hotels (mostly Holiday Inns), as well a 22 limited service hotels.
The expectation is that at least some of the last group would be sold at some point, as FelCor continues to concentrate on high-end properties.
Needless to say, I've yet to digest the 200-plus page document. I did notice, though, that the pro-forma book value of the new FelCor is set at $30.40 per share -- that is, barely a dollar less than the $31 7/16 price at which the stock closed today (up $1/4). When you also consider that FelCor shareholders would receive a one-time cash distribution of approximately $0.30 to $0.50 per share later this year should the merger close as intended, the stock appears to be trading at essentially zero premium to book.
That conclusion is consistent with the latest installment of Barry Vinocur's regular column on REITs in Barron's. Vinocur cites a recent Lehman report that lists FelCor as being among 10 REIT stocks trading at yields to 1998 estimated funds from operations above 10%. That yield is currently better than that at which most properties can currently be purchased, thus making those REITs good candidates for share buybacks.
Moving from hotels to frozen yogurt, you may have read or seen some of the news about the dramatic rise in butterfat prices. Spot prices on butter futures have fattened up by 73% this year, with most of that occurring in the past 60 days.
Among the culprits mentioned in the reports is an unusually strong demand for ice cream due to early summer heat. Strong demand or not, shares of Dreyer's (Nasdaq: DRYR), Friendly's (Nasdaq: FRND), and Ben & Jerry's (Nasdaq: BJICA) have gotten creamed in recent trading due to concerns about the impact that rising costs will have on profits, and at least a couple of premium ice cream makers have announced price hikes to compensate for the ballooning price of fat.
Rising butterfat prices should have much less impact on TCBY Enterprises (NYSE: TBY), since most of its products are low-fat or no-fat. In any event, TCBY stock dipped $1/16 to $8 5/16 in light trading Monday.
Stock Change Bid ANDW - 1/4 18.13 CGO - 5/16 33.06 BGP + 1/16 36.69 CSL - 5/16 43.44 CSCO +1 15/16 91.81 FCH + 1/4 31.44 PNR + 3/16 40.50 TBY - 1/16 8.31
Day Month Year History BORING +0.31% 1.92% 3.14% 29.79% S&P: +0.47% 4.37% 17.32% 83.15% NASDAQ: +1.15% 6.31% 20.42% 81.67% Rec'd # Security In At Now Change 2/28/96 400 Borders Gr 11.26 36.69 225.93% 6/26/96 150 Cisco Syst 35.93 91.81 155.51% 8/13/96 200 Carlisle C 26.32 43.44 65.01% 3/5/97 150 Atlas Air 23.06 33.06 43.39% 4/14/98 100 Pentair 43.74 40.50 -7.41% 11/6/97 200 FelCor Sui 37.59 31.44 -16.37% 5/20/98 400 TCBY Enter 10.05 8.31 -17.25% 1/21/98 200 Andrew Cor 26.09 18.13 -30.53% Rec'd # Security In At Value Change 2/28/96 400 Borders Gr 4502.49 14675.00 $10172.51 6/26/96 150 Cisco Syst 5389.99 13771.88 $8381.89 8/13/96 200 Carlisle C 5264.99 8687.50 $3422.51 3/5/97 150 Atlas Air 3458.74 4959.38 $1500.64 4/14/98 100 Pentair 4374.25 4050.00 -$324.25 5/20/98 400 TCBY Enter 4018.00 3325.00 -$693.00 11/6/97 200 FelCor Sui 7518.00 6287.50 -$1230.50 1/21/98 200 Andrew Cor 5218.00 3625.00 -$1593.00 CASH $5511.82 TOTAL $64893.07