TheStreet.com's DAILY BULLETIN
October 12, 1999
Market Data as of Close, 10/11/99:
o Dow Jones Industrial Average: 10,648.18 down 1.58, -0.01%
o Nasdaq Composite Index: 2,915.95 up 29.38, 1.02%
o S&P 500: 1,335.21 down 0.81, -0.06%
o TSC Internet: 745.41 up 12.62, 1.72%
o Russell 2000: 430.19 up 2.48, 0.58%
o 30-Year Treasury: 99 00/32 unchanged , yield 6.189%
Companies in Today's Bulletin:
Applied Materials (AMAT:Nasdaq)
Rite Aid (RAD:NYSE)
In Today's Bulletin:
o Media/Entertainment: MGM's Rebound Has Investors Looking for Action
o Wrong! Dispatches from the Front: Watching the Semis Sizzle
o Evening Update: Rite Aid Warns of Loss on Charges; After-Hours Trading Update
Also on TheStreet.com:
Mutual Funds: Vanguard Takes Low-Key Approach to Calculating Tax Bite on Its Funds
The company will provide tax-adjusted returns in its funds' annual reports.
Brokerages/Wall Street: Wit Capitalizing on Goldman's Brotherly Affection
Goldman Sachs has a stake in the online investment bank, which is reaping the benefits with increased underwriting commitments and more stakes in Goldman-led deals.
The Invisible Mouth: Mail Answer Syndrome
The Mouth takes a trip to the mailbox.
Roque's Gallery: The Tao of the Dow
Sometimes, simple reviews of price action reveal more insights than the most sophisticated indicators.
Media/Entertainment: MGM's Rebound Has Investors Looking for Action
10/11/99 9:16 PM ET
Alex Yemenidjian, the new head of
, wants to turn back the clock.
Since 1990, MGM, the studio responsible for
The Wizard of Oz
, has been through more turmoil than a breakaway Russian republic, including a bankruptcy filing and a series of ruinous contracts that put much of the company's huge film library in the hands of its competitors. Even the support of billionaire financier
, who put his resources behind MGM three years ago, hasn't kept the studio from staggering, producing only a few forgettable new movies.
Now Yemenidjian, installed in April by Kerkorian as chairman and CEO of MGM, has turned his energies to rescuing the studio. There's a lot at stake for both Kerkorian, who owns about 90% of MGM, and Yemenidjian, who was given a massive option grant when he agreed to add MGM to his workload five months ago. He already is president of
, a casino company Kerkorian controls.
MGM announces earnings Tuesday morning, and Yemenidjian's all but promised that the results will offer the first taste of a new, more profitable MGM. Wall Street is expecting great things: MGM stock is already up more than 60% since Yemenidjian took over and is no longer cheap, even by the lofty standards of the entertainment sector. (For a note on the recent stock movement, click
here.) Now Yemenidjian, who earned investors' respect at MGM Grand, is about to find out if his experience on the Las Vegas Strip can translate to Hollywood.
It's far from a sure bet. Though the casino business can be tough, it's cozy compared to the big leagues of the entertainment industry. With a market cap of less than $4 billion, MGM is a minnow compared to $70 billion whales like
, which sometimes seem to view their studio divisions as loss leaders.
So what has investors excited? In an interview last week, Yemenidjian outlined a three-pronged strategy to turn around the studio. The company has already made short-term strides by cutting its operating costs and buying its way out of the costly deals it has signed with other studios to distribute its film library. Those moves will lower its expenses by $40 million annually, Yemenidjian says. (For its latest quarter ended June 30, MGM reported a loss of $250 million on revenue of $212 million.) MGM also expects to get more cash out of its old films through an improved distribution deal it has signed with
The cost cuts, along with the solid performance of MGM's two most recent movies, have left Yemenidjian optimistic that MGM's third-quarter results will impress investors. He notes that the company moved up its earnings announcement by three weeks to beat the late October rush, usually a sign that management wants earnings to be noticed.
In addition, the studio is combing its library for films that might make good remakes. To that end, it has signed a co-production agreement with
unit) to make eight new movies, six of which will be based on films in MGM's library. The move gives MGM better access to A-list actors, who are more likely to take a chance on a quirky remake if it has Miramax's seal of approval.
But if MGM is to succeed in the long term, it needs a new revenue stream, not just a couple of hit movies. To that end, Yemenidjian is working to create several new MGM-branded cable networks, including science-fiction and comedy channels.
For MGM, the problem is finding cable operators to distribute its offerings. Space on analog cable systems, which serve the vast majority of homes with cable, is at a premium, and most new cable channels have had to pay steep per-subscriber fees to get distribution. Yemenidjian won't rule out spending some of MGM's new war chest to get distribution, but it's more likely that he'll settle for digital distribution through satellite services and the slow expansion of digital cable.
Either way, building a cable network is Yemenidjian's top medium-term priority, and he hopes to announce at least some deals by year-end.
In the long run, Yemenidjian wants to make MGM big enough to compete with its much larger cousins, either by buying more assets or selling to another entertainment company. Unfortunately, most of MGM's obvious potential partners already have studios. (For a detailed look at who owns what in the entertainment business, click
Unfortunately for investors, MGM's recent run-up means it's no longer a bargain, at least in the short run. After the rights offering, the company will have 200 million shares outstanding, along with $700 million in debt. That gives it a total value of about $5 billion. The company has guided investors to expect it will have around $250 million in cash flow next year, giving it a total value of 20 times cash flow, compared to 11 to 16 times cash flow for the company's much bigger competitors.
Even assuming Yemenidjian is leaving himself room to beat expectations and MGM turns in $300 million in cash flow next year, the company is still trading at a premium to companies like Time Warner. That's surprising given MGM's lousy recent history, but a testament to the high regard investors have for Yemenidjian and Kerkorian.
Ken Korngiebel of
, an Oregon fund management company that has more than $20 billion in assets, compares Kerkorian to John Malone, who made investors fortunes at both
, now a unit of
. Columbia doesn't own MGM, but it subscribed for 2 million shares in the just-canceled offering. "There's a Malone factor with Kerkorian -- when he's made money, other people have made money with him," Korngiebel says. "And Alex's record at the casino -- he made people a ton of money."
Now investors are about to find out if Yemenidjian can do the same in Hollywood, where it's the players who have the edge.
Wrong! Dispatches from the Front: Watching the Semis Sizzle
James J. Cramer
10/11/99 5:27 PM ET
The shorts must be feeling referral pain. They know that the semiconductor-equipment stocks are going to be sizzling off of this
Tell us what you think of Cramer's latest on
They are all being bid up as I write. I tried to take some
at 83 7/8, but someone got there ahead of me and now the only offering is at 85. "Come on, hit me down here," I say to myself, but the sellers have either gone home or disappeared.
We don't know ourselves whether to be more aggressive. We figure that the bonds will open up and sell off tomorrow because oil has rallied, and we will get to buy some of these stocks more cheaply. But that's probably foolish. These stocks are arrogant. They thumb their noses at those of us who worry about the bonds.
Ironically, I thought it was Novellus that was going to beat Applied Materials to 100, a prediction I made when our
TV show began. Well, long term, it just might happen! (he said hypocritically).
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Applied Materials. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at
Evening Update: Rite Aid Warns of Loss on Charges; After-Hours Trading Update
10/11/99 8:31 PM ET
warned investors that it expects to post a second-quarter loss of 26 cents a share after charges. The 11-analyst
First Call/Thomson Financial
consensus estimate expects the company to report second-quarter earnings before charges of a 24-cent profit, down from the year-ago 33-cent profit. Rite Aid blamed the weak results on restructuring charges and charges associated with its purchase of
PCS Health Systems
The drugstore chain also said that it plans on restating previous financial statements to indicate changes in accounting methods for particular lease agreements and impaired assets.
Standard & Poor's
T. Rowe Price
. Data General was bought by
will take T. Rowe Price's place on the
S&P MidCap 400
Nothing exciting tonight, but Mondays are usually moderate and only move on news.
led the most-actives on
for the entire postbell period.
traded heavier as the night wore on.
it was a small world after all.
shared the top slot with
Bank of America
, each trading 1,000 shares.
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.
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
announced its plans to purchase
, in a $72 million stock and cash transaction. According to the deal's terms, Agile would pay $22 million in cash and roughly $52 million in common stock to buy Digital, in an effort to boost its e-commerce options.
said it has closed bidding for its gold mining business and plans to continue talks with interested acquirers. The business includes Pioneer's African exploration rights and its 90% equity stake in Pioneer Goldfields' Ghanaian division
Teberebie Goldfields Limited
Earnings/revenue reports and previews
expects to post third-quarter earnings of 70 cents to 72 cents a share, beating both the eight-analyst estimate of 58 cents and the year-ago 56 cents. The company attributed its strong anticipated earnings to power plant acquisitions.
posted third-quarter earnings of 60 cents a share, in line with the five-analyst estimate and up from the year-ago 45 cents.
Computer Task Group
said it reported third-quarter earnings of 21 cents a share, beating the six-analyst estimate of 19 cents but down from the year-ago 37 cents.
CEO Chuck Watson said his company would beat the eight-analyst third-quarter estimate of 24 cents a share and said that the fourth-quarter outlook appears "equally as good." Watson did not specify a numerical estimate for the third-quarter earnings.
said it anticipates third-quarter earnings to be in the range of 24 cents to 28 cents a share, greatly missing the four-analyst estimate of 40 cents and the year-ago 52 cents.
reported third-quarter earnings of 42 cents a share, beating both the 18-analyst estimate of 41 cents a share and the year-ago 34 cents. The company upped its 1999 production target to 175,000 units, while putting its 2000 target at 193,000.
International Home Foods
said it anticipates reporting third-quarter earnings at 43 cents a share, beating both the five-analyst estimate of 40 cents and the year-ago 33 cents. The company added that it would assume a third-quarter $21 million charge for a tax restructuring program, aimed at saving $2 million, or 3 cents a share, annually.
Modem Media.Poppe Tyson
said it expects third-quarter revenue to surpass $21 million, a 90% increase from the year-ago. Modem Media cited client and international growth for the rise in revenues.
posted third-quarter earnings of 54 cents a share, beating both the 22-analyst estimate of 46 cents and the year-ago 22 cents.
said its expects to report second-quarter earnings at roughly 2 cents a share, beating the seven-analyst estimate of a 2-cent loss and in line with the year-ago 2-cent profit. The company said that strong sales and enhanced manufacturing would helped boost earnings
said it anticipates posting third-quarter earnings of 31 cents a share, beating the 12-analyst estimate of 30 cents and the year-ago 27 cents.
said that its
division's executive vice president and COO David Bronczek will replace the retiring Theodore Weise as the unit's president and CEO.
said it would evaluate retiring its DC-9-30 fleet sooner than it expected, which could have the company assuming a fourth-quarter non-cash charge of possibly $150 million. This week, the company will roll out service with its new Boeing 717-200 aircraft.
Vern Hayden on CNBC
Tuesday, October 12
Vern Hayden will be on CNBC's Power Lunch starting at noon.
Spencer Ante and David Readerman
Tuesday, October 12
Join Spencer Ante and Thomas Weisel Partners director of Internet strategy David Readerman for a chat on the Internet sector at 5 p.m. EDT on Yahoo!
Chat at: chat.yahoo.com. It's free!
Copyright 1999, TheStreet.com