daily09-30-99 - TheStreet


Publish date:

TheStreet.com's DAILY BULLETIN

October 1, 1999


Market Data as of Close, 9/30/99:

o Dow Jones Industrial Average: 10,336.95 up 123.47, 1.21%

o Nasdaq Composite Index: 2,746.16 up 15.89, 0.58%

o S&P 500: 1,282.71 up 14.34, 1.13%

o TSC Internet: 647.38 up 3.89, 0.60%

o Russell 2000: 427.30 up 5.78, 1.37%

o 30-Year Treasury: 101 03/32 up 1 04/32, yield 6.056%

Companies in Today's Bulletin:

Stamps.com (STMP:Nasdaq)


Excite@Home (ATHM:Nasdaq)

America Online (AOL:NYSE)

In Today's Bulletin:

o Internet: Stamps.com Sticks to October Launch Date, Hopes Revenue Will Follow
o Market Features: Earnings Will Be on Fire, but Will They Spark the Market?
o Evening Update: AT&T Weighing Alternatives on Excite@Home; After-Hours Trading Update
o Bond Focus: Big Rally Leaves Bond Mavens Dumbfounded

TheStreet.com on the Fox News Channel

Gruntal's Peter Green does the "Drill" with Herb Greenberg and Dan Colarusso. Find out which stocks the technical analyst likes and which ones he'd most like to short.

And Gary B. Smith goes head-to-head with Adam Lashinsky over two top market indexes in Chartman. Will it be buy, sell or hold for the Nasdaq and the S&P 500?

Also, Jim Cramer's calling for a rough road in the month ahead. He'll tell how he plans to dodge the missiles of October.

"TheStreet.com" on the Fox News Channel airs Saturdays at 10 a.m. and 6 p.m. ET and Sundays at 10 a.m. ET.

FNC is Fox's 24-hour cable news channel. To find the Fox News Channel in your area, call your local cable operator or see our "TSC on Fox" page at www.thestreet.com/tv (look for the yellow box in the upper right hand corner).

Also on TheStreet.com:

Wrong! Dispatches from the Front: The Loonies Weigh In

The trader is not always right, but he calls it as he sees it. Some folks can't deal with that.


Wing Tips: Airlines Bid a Not-So-Fond Farewell to the Third Quarter

Holly is back, and she takes a look at the abysmal third-quarter performance in airline stocks.


Internet: CNet Moves Toward Big Ambitions With Big Marketing Push

While it's a bit premature to assess the campaign's success, the Web site is reporting more member visits and raising ad rates.


Europe: Italy Cuts Budget Deficit, but Pension Worries Remain

Though Rome looks to be running a tighter post-euro ship, it has to contend with a hefty pension system and an aging population.


Internet: Stamps.com Sticks to October Launch Date, Hopes Revenue Will Follow


Suzanne Galante

Staff Reporter

9/30/99 7:51 PM ET



(STMP) - Get Report

has a billion-dollar plan.

The big question is whether that plan -- selling postage over the Internet by letting companies and consumers print their own postage-ready envelopes -- will pan out. Stamps.com's $1.2 billion market cap is based on the premise that companies and consumers will pay to bring the post office, in all its glory, to the personal computer.

The catch is that the company has had no revenue to date. That's right. Stamps.com went public in June on an idea -- an idea that raised $58.8 million for the company. And that idea still hasn't made it to fruition. Some 94,000 people have "preregistered" for the service, but none has given credit-card numbers or paid any fees to Stamps.com.

The company will charge customers a 10% fee on top of the postage. The minimum fee for companies is $3.99 a month, with the maximum at $29.99. Individuals can pay a flat fee of $1.99 for up to $25 of worth of postage a month.

"People who only use $6 a month

in postage are probably better off continuing to use stamps," company CEO John Payne said at the

Volpe Brown Whelan Internet & Communications Conference

earlier this week. But the convenience of having an Internet-based postage service in the office is what interests Ken Winston, a portfolio manager at

Standish Ayer & Wood

, which holds shares of Stamps.com. "For small-business people, it makes it so much easier and cheaper than using a postage meter."

Not all of Wall Street is so enthusiastic. One hedge fund manager without a position in Stamps.com said that it's one thing to get $20 a month from individual customers, like

America Online


charging monthly access fees, but getting $20 a month from business customers is a less enticing model. Stamps.com didn't release data on how many of its potential users are business customers and how many are individuals.

The company delayed its planned Sept. 27 launch to ensure that the system capacity was up to snuff. Stamps.com now plans to unveil the service in October. Another investor, who shouted out during the question-and-answer session following the formal presentation at the Volpe conference, wanted to hear a guarantee that it wouldn't be delayed again. Payne assured that "it's not likely to happen again."

Payne outlined several partners to distribute Stamps.com's software. AOL will include it on 50 million marketing CD-ROMs during the next year. He also wants to bundle it on PCs and embed it into other software applications, such as address books and programs like


(MSFT) - Get Report

Outlook and Word.

MySoftware Company

will integrate the Stamps.com Internet Postage service with its family of direct-marketing software products, and


(INTU) - Get Report

will make Stamps.com its exclusive Internet postage partner on



Quicken.com Small Business


When the company integrates its product into more software products like Microsoft Word, that's when "it's going to be big," says Winston. He predicts that Stamps.com will have 1 million customers by the end of the year and 2 million by the end of next year. And Stamps.com will be a better option than its competitor


, he says, because there is no hardware to buy and attach to users' PCs.

That prediction is very optimistic, considering the current limit set by the

U.S. Postal Service

is 10,000 customers. Privately held E-Stamp, which like Stamps.com has been in business since the U.S. Postal Service granted approval in August, claims 10,000 customers -- all paying.

Volpe analyst Derek Brown expects the company will produce $500,000 in revenue this year (which will have to happen in the fourth quarter, provided the service launches in October as expected) and $16.1 million in 2000. Volpe helped underwrite Stamps.com's June 1999 IPO.

Before competing head on with each other, both Stamps.com and E-Stamps will be busy taking on

Pitney Bowes'

(PBI) - Get Report

metering machines and its near

monopoly. The

Department of Justice

recently launched an investigation of the company. Pitney Bowes' Personal Post, aimed at small businesses, is a flat rate $19.75 a month, or $24.75 a month if businesses rent the scale as well.

Market Features: Earnings Will Be on Fire, but Will They Spark the Market?


Thomas Lepri

Staff Reporter

9/30/99 7:04 PM ET

Just follow the smoke. Over there, between the mounting basis points and the

worrisome yen, beyond the

gold-carry trade and that handful of

"absurdly" valued tech companies, you can just make out those blazing corporate earnings.

Preannouncements are hitting their stride, and despite the worst that


(AAPL) - Get Report



(G) - Get Report

can do, it looks like the numbers are going to come in extremely strong when full-fledged earnings season kicks off Oct. 11.

Overall, negative preannouncements have been coming in slightly above pace -- about 190 so far, according to Chuck Hill, director of research at

First Call/Thomson Financial

, who noted particular concentration in defense/aerospace, transportation and multinational consumer staples. But Hill says that while that trend "could be worrisome if it continues to run higher than normal," earnings warnings have been resulting only in a normal trimming of third-quarter estimates.

Specifically, analysts are now calling for about 19.7% growth in third-quarter earnings from the same period last year, Hill says, adding that earnings have beaten estimates by an average of 2.7% over the last five and a half years. "We've been saying for months that we'll get trimmed down to 19% and then beat that by about 3%," says Hill. "And we still feel we're right on track for that."

All About Energy

This quarter will offer a major reshuffling in sector leadership from previous quarters. During the first half of the year, technology and consumer cyclical stocks reigned while the energy sector languished. But the boom in oil prices has changed all that. After two quarters of contraction -- declines of 45% and 20% in the first and second quarters, respectively -- energy is now expected to lead the earnings parade with growth of 47%.

And that's just the beginning. Analysts are estimating that fourth-quarter energy sector earnings will come in a whopping 100% higher than the year-ago period. What's more, those estimates are based on some rather conservative forecasting of crude oil prices: $19.95 a barrel in the third quarter, $20 a barrel in the fourth quarter, and an average of $18.83 a barrel for all of 2000, according to the 47-analyst consensus. Crude oil futures lately stood at $24.53 a barrel.

That could mean a lot of upside as long as crude holds up. "We still see a huge upward revision of earnings estimates as necessary," says Doug Cliggott, market strategist at

J.P. Morgan

. "A lot of analysts are still using $18-, $19-a-barrel average next year. We're thinking $21 is more likely."

A host of other sectors are looking strong: The financial sector is expected to post 34% growth. Next comes technology at 31%, and then consumer cyclicals at 27%. Even the lowly basic materials sector's earnings are projected to be 8% higher than in the third quarter of last year.

It Just Doesn't Get Any Better Than This

"Growth has been accelerating from the bottom of the third-quarter of 1998," Hill notes. "But that will be the peak."

Hill says fourth-quarter forecasts are calling for growth of 20.6% from last year. If history is any guide, that should get trimmed down to around 19% or 20%. The same pattern holds for the first quarter of 2000, says Hill. The 19% growth projected right now for that period still has six months of trimming to undergo: "So we're talking mid-teens if patterns don't change. We're on track for decelerating growth."

That's not as bad as it may sound. Historically, corporate earnings have grown by an average of 7%. More importantly, though, decelerating growth isn't as bad as it sounds because third-quarter earnings themselves aren't as good as they sound.

"Comparisons are


easy," says Cliggott.

Remember, at this time last year, financial stocks were taking huge charges from overseas trading losses. Technology was still correcting from the inventory gluts experience earlier in the year. And energy stocks were languishing amid crude prices stuck under $16 a barrel and headed lower. In general, year-over-year comparisons will get a lot tougher in the coming quarters.

Cliggott himself doesn't think we're at the apex just yet, but he still sees growth tapering off soon: "We see two more quarters of real strength, though there are some big assumptions with that: that it will be tough to slow the U.S. economy; that we'll continue to see improving growth outside the states. We'd put the peak in

S&P 500

earnings at the first quarter of next year and then see progressive slowing toward 2000."

Cat's Out of the Bag, but Is the Price in the Market?

Of course, people have known that third-quarter earnings are going to come in strong for months. Cliggott expresses the matter thusly: "First quarter: big surprises. Second quarter: big surprises. It's not a secret anymore that S&P 500 earnings are recovering."

The ultimate drama, then, lies in the question of how the market will receive something it's been expecting for so long. If investors aren't able to focus on earnings, stocks may have a tough time capitalizing. For Cliggott, strong earnings news will likely be overshadowed by what he sees the same negative interest rate environment that the stock market's been struggling with for months. "That's why the direction of the market has been more often down than not

lately," he says. "Good earnings news appears to be in the market. And the other side of that coin" -- rising interest rates -- "is less attractive."

"No, I don't think so," disagrees Jeffrey Applegate, chief investment strategist at

Lehman Brothers

. "If the market hasn't basically got its eye on worrying about the


, or the yen, or whatever -- if earnings news is the dominant news, the response will be symmetrical."

Not an insignificant "if" by any means. Bring on the

Federal Open Market Committee


Evening Update: AT&T Weighing Alternatives on Excite@Home; After-Hours Trading Update


Tara Murphy

Staff Reporter

9/30/99 9:11 PM ET


(T) - Get Report

said it was considering strategic options relating to its 58% interest in


(ATHM) - Get Report

. In response to rumors that

America Online


had been pinned as a possible buyer, AT&T said it has not forged any definitive deals.

Here's Excite@Home's entry in the 1999 Flackspeak Awards. We may have a winner:

As we have previously stated, the Excite@Home management team, in conjunction with our cable partners, has periodically explored, and will continued to explore, many alternatives for maximizing shareholder value. Like all companies in the Internet industry, we are continuously assessing various forms of strategic relationships. There is no certainty that any transaction will occur and we will not comment further until we decide definitively to pursue a particular transaction, if any.

Excite@Home jumped 2 7/8 to 44 3/8 in after-hours trading on

Island ECN

(see below).


(AAPL) - Get Report

is set to make its last major announcement of the year Tuesday at the

Flint Center

in Cupertino, Calif. There's no official word on what the announcement will be about, but analysts speculate it could concern the second version of Apple's popular iMac computer.

After-Hours Markets

Tonight on "As the Market Turns": Will AT&T unload Excite@Home after announcing that it is "seeking alternatives" to ownership in the company? Will the high-speed Internet access company high-tail it over to AOL, a rumored suitor?

There were few answers during tonight's after-hours trading. One thing was certain, Excite was excitable, trading furiously on

Island ECN

after 6 p.m. EDT. Across town, on

Market XT

, the company led trading. Investors have been courting the stock under moonlight, hoping to rebound with the stock if it gets dumped.

Island ECN, owned by Datek Online, offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 8 p.m. EDT. Prior to Sept. 15 Island offered trading from 8 a.m. to 5:15 p.m. EDT


MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter's (MWD) Discover Brokerage and Mellon Bank's (MEL) Dreyfus Brokerage Services. Clients can trade 200 of the most actively traded New York Stock Exchange and Nasdaq Stock Market issues, 6 p.m. to 8 p.m. EDT Monday through Thursday.


updates the most active issues on both MarketXT and Island ECN in Got a Minute? and in the Evening Update.


Eric Gillin

In other postclose news (earnings estimates from

First Call/Thomson Financial

; earnings reported on a diluted basis unless otherwise specified):

Mergers, acquisitions and joint ventures


(PCG) - Get Report


Pacific Gas & Electric

said it has provided California regulators with a blueprint of it hydroelectric system, which it plans to sell in order to meet laws involving the restructuring of the state's power industry. According to the division, if authorized, the auction would be open to anyone.

Earnings/revenue reports and previews


(APEX) - Get Report

cautioned that it would report third-quarter earnings between 21 cents to 23 cents a share, missing the five-analyst estimate of 27 cents but up from the year-ago 18 cents. The company blamed to soft earnings due to the introduction of a product line for one of its OEM customers.



said its third-quarter earnings would be in line with the single-analyst estimate of 78 cents a share and close to the year-ago 79 cents. The company also said it anticipates the fiscal 1999 earnings to be 20% to 25% below the two-analyst estimate of $2.76 a share as a result of a $15 million fourth-quarter charge for the restructuring of its North American business. The reorganization effort will reduce the company's workforce by 180.

Catalyst International


warned investors that it expects to post a third-quarter net loss between 78 cents to 89 cents a share. The five-analyst consensus estimate expects the company to report a 10-cent profit. The company cited decision delays associated withY2K and soft sales of new accounts for the disappointing results.



warned investors that it expects to post third-quarter earnings of 1 cent to 3 cents a share, missing the single-analyst estimate of 7 cents but better than the year-ago 63-cent loss. Cidco attributed the soft earnings to problems related to Hurricane Floyd and the earthquake in Taiwan.

Columbia Sportwear

(COLM) - Get Report

announced its plans to close it only manufacturing facility in an effort to increase efficiency, cutting its workforce by 185 jobs. The company would assume a one-time restructuring charge for the shut down of the Chaffee, Mo., plant, which is set to occur in the spring of 2000.

Commonwealth Industries


said metal margin cuts at its aluminum business division will result in third-quarter earnings between 28 cents to 32 cents a share, missing the five-analyst estimate of 43 cents but up from the year-ago 13-cent loss.


(DD) - Get Report

refuted that its management alluded to the company missing analysts' third-quarter consensus estimates during an industry conference. DuPont CFO Gary Pfeiffer said that "there was no change in the company's previous comments regarding its third-quarter earnings," after television news reports that indicated otherwise. Analysts expect the company to earn 58 cents a share for the third quarter, up from the year-ago 53 cents.



warned investors that it would report third-quarter earning in the range of 7 cents to 9 cents a share, missing the three-analyst estimate of 16 cents and the year-ago 16 cents. The company blamed the weak results on slower deliveries after Taiwan's earthquake.

Offerings and stock actions

Morgan Stanley Dean Witter

priced the 3.5 million-share IPO of

Digital Insight

(DGIN:Nasdaq) above-range at $15.



said it will consider spinning off its Internet subsidiary.

Sam Goody


Musicland Stores


said it set a share repurchasing plan for up to 3 million shares. The company also said it has forged a deal to switch its current credit facility with a backup $25 million secured facility. Under the new agreement, Musicland is now permitted to buy back stock.

Salomon Smith Barney


Lehman Brothers


Merrill Lynch

priced a 29.6 million-share IPO for

Williams Communications

(WCG:NYSE) top-range at $23.


Eli Lilly

(LLY) - Get Report

said it was awarded

Food and Drug Administration

approval for its osteoporosis treatment




Nasdaq Stock Market

said the

Securities and Exchange Commission

awarded it approval to use an

OptiMark Technologies

electronic trading system that matches block trades anonymously. Nasdaq, which plans to begin use of OptiMark on Oct. 11, said that it would conduct trades in 10 of the exchange's most actively traded stocks for two weeks prior to taking on all of Nasdaq's listed stocks.

Bond Focus: Big Rally Leaves Bond Mavens Dumbfounded


Elizabeth Roy

Senior Writer

9/30/99 5:10 PM ET

The Treasury market left its audience flummoxed today, staging a huge rally even though stocks soared (a factor that helped crush them on

Monday) and a measure of wholesale prices rose sharply (a factor that ought to have made things difficult for them in any case).

Aided by the news of a nuclear accident in Japan, which triggered flight-to-quality buying of U.S. bonds, the benchmark 30-year Treasury gained a full point to 101, trimming its yield 7 basis points to 6.05%. Shorter-maturity note yields shed anywhere from 6 to 8 basis points.

"If one had known before the fact that the stock market was going to be up

123 points and the price component of the

Chicago Purchasing Managers' Index

was going to be 71, one would never have figured out this move, ever," said Mark Sauvigne, vice president at

Chase Securities


"It's really a dramatic development,"

Morgan Stanley Dean Witter

chief money-market economist Bill Sullivan agreed. "I wouldn't have anticipated this type of improvement in Treasury prices."

The Chicago PMI is a leading regional manufacturing survey, closely watched as a possible predictor of the national

Purchasing Managers' Index

released the next business day. The index itself was weaker than expected, printing 53.8 for September, vs. a


consensus forecast of 56.6. Readings over 50 signal expansion, while those under 50 signal contraction.

But its prices paid index rose to 71, exceeding 70 for the first time since June 1995, from 63.8 in August. In September 1998, it stood at 41.8. In the bond market, the fear is that rising prices at the producer level will eventually mean rising prices at the consumer level, necessitating higher interest rates to cool the economy.

To the extent that it was explicable, analysts attributed the market's move to the fact that other economic data released today were market friendly, to battle fatigue after going down pretty hard for three consecutive days, and to month-end forces.

On the economic front, the data were thoroughly mixed. On the bearish-for-bonds side with the Chicago PMI price index,

new home sales

rose for the fourth month in a row, defying predictions they would fall. They hit a pace of 983,000 in August, just shy of their all-time high of 985,000, up from a revised 980,000 in July.

But bullishly for bonds, last week's 25-year-low count of

initial jobless claims

was exposed as a fluke. The count jumped to 299,000 this week from a revised 274,000 last week. And in the final revision to second-quarter


, the government clocked the economy's growth rate at 1.6%, down from 1.8%, and measured inflation at a rate of 1.3%, down from 1.5%.

In Sauvigne's analysis, the rally had more to do with the fact that yields on most Treasury issues had risen 15 to 20 basis points over the previous three sessions. "When it's all done and over, maybe the seesaw tipped too far in one direction," he said. "We were down three days in a row. It's tough to go down a lot unless you get new selling. But people were certainly caught off sides by it."

The end of the month can spur buying of Treasuries, but that effect was muted today. At the end of each month, the various firms that compile bond indices rebalance them, removing bonds whose maturities have shortened and adding new issues. The rebalancing lengthens the duration of the index (duration is a measure of interest-rate sensitivity), and causes portfolio managers who model their portfolios on the index to buy the new issues.

Today, however, the key Treasury index, the

Lehman Brothers Treasury Index

, saw its duration lengthen by less than usual. Its duration was expected to lengthen by 0.03 years, whereas an extension of 0.05 to 0.07 years is typical. A Lehman spokesman said by chance, fewer securities in the index saw their maturities shorten to under a year, the criterion for removing them.

The nuclear accident in Japan appeared to spur buying of Treasuries on generalized fear, Sauvigne said, even though it might eventually lead the Japanese government to sell Treasuries to raise funds.

The other factors that have been taking turns guiding Treasury prices in the economic data vacuum that is the second half of September -- the dollar against the yen, oil and gold -- provided little direction today. In the meantime, the bond market's roving eye is breeding reluctance to predict what it might do in the days ahead. "Every day it's a new influence on the bond market," Sullivan said. "We just jump around. There's a total disconnect from day to day in what is the major influence."



Street Sightings

James J. Cramer will be appearing on CNN's Moneyline Friday, Oct. 1, at 7:20 p.m. ET.

Vern Hayden will be on Bloomberg Television's "Bloomberg Personal" Saturday, Oct. 2, starting at 6:30 a.m. ET. on the USA Network.

Copyright 1999, TheStreet.com