midday10-11-99
TheStreet.com's MIDDAY UPDATE
October 11, 1999
http://www.thestreet.com
Market Data as of 10/11/99, 1:08 PM ET:
o Dow Jones Industrial Average: 10,647.86 down 1.90, -0.02%
o Nasdaq Composite Index: 2,900.09 up 13.52, 0.47%
o S&P 500: 1,333.94 down 2.08, -0.16%
o TSC Internet: 737.27 up 4.48, 0.61%
o Russell 2000: 429.12 up 1.41, 0.33%
o 30-Year Treasury: 99 00/32 unchanged , yield 6.189%
In Today's Bulletin:
o Midday Musings: Bereft of Bond Influence, Stocks Drift
o Herb on TheStreet: Is Bell Atlantic's Deal With Metromedia Fiber Really Worth Another $2 Billion in Market Value?
TheStreet.com Community
On today's boards, Cramer wonders why Abercrombie & Fitch continues to get hammered despite the backing of a dozen brokerages, Jim Seymour and Adam Lashinsky continue looking at Webvan and readers share their thoughts on the week ahead.
The Market According to James J. Cramer
http://www.thestreet.com/bbs/Forum4/HTML/000016.html
TheStreet Recommends
Webvan Stakes Its Claim in Net Groceries Business
http://www.thestreet.com/bbs/Forum1/HTML/000031.html
The Coming Week: Fed-Obsessed Market Will Turn Its Gaze to Earnings
http://www.thestreet.com/bbs/Forum6/HTML/000003.html
And, make sure to chat with John J. Edwards III on AOL's MarketTalk at 3:30 p.m. EDT. MarketTalk is hosted by Sage Online. (Keyword: PF Live)
Also on TheStreet.com:
Wrong! Dispatches from the Front: A Different Kind of Opportunity
Take a look at what's happening with Abbott Labs today. After witnessing the action, Cramer's got a new strategy for reacting to those nasty FDA letters.
http://www.thestreet.com/comment/wrong/793405.html
Internet: Excite@Home Investors Worry Merger Worked Better in Theory Than in Practice
Big shareholders in Excite@Home are questioning if the marriage to @Home has blurred the portal's focus. And in the hypercompetitive Internet, focus is the name of the game.
http://www.thestreet.com/tech/internet/792303.html
Telecom: Global Crossing Keeps Spending, Much to Analysts' Delight
The stock was off 6%, but analysts said the company remains on the right track.
http://www.thestreet.com/tech/telecom/793401.html
Dear Dagen: Dear Dagen: Lucent's Odd-Lot Buyback Offer No Big Deal for Many Internet Traders
But most Lucent shareholders with fewer than 100 shares appear not to have brokerage accounts.
http://www.thestreet.com/funds/deardagen/793220.html
Midday Musings: Bereft of Bond Influence, Stocks Drift
By
Thomas Lepri
Staff Reporter
10/11/99 1:16 PM ET
No distracting economic data. The buzz-killing bond market home for the holiday. An unnoteworthy
speech by
Fed
boss
Alan Greenspan
.
All things considered, it's not the worst of days to kick off earnings season.
The market has been hearing for some time about how good third-quarter earnings are going to be: Analysts are estimating profits to come in about 19.4% higher than this time last year, according to
First Call/Thomson Financial
. This week we'll finally get to test those estimates, and see if the market is in any mood to care.
With earnings heating up later this week, today's action has been relatively muted, highlighted by
Abbott Laboratories'
(ABT)
in-line report and
Knight/Trimark's
(NITE)
negative preannouncement.
But the market's tone seems good, especially in tech. At midday, while the other major proxies were moving to and fro within their respective ranges, the tech-injected
Nasdaq Composite Index
was hovering in record territory, up 16 to 2903.
Intel
(INTC)
was moving up 1 3/4, or 2.3%, to 77 1/2 ahead of its third-quarter earnings report tomorrow.
The
Dow Jones Industrial Average
was up 15 to 10,665, while the
S&P 500
was down a scant fraction to 1336.
The Street.com Internet Sector
index was up 6 to 739, and the small-cap
Russell 2000
was up 2 to 429.
Peter Cardillo, chief strategist at
Westfalia Investments
, sees stocks rallying well for the next couple of sessions on strong earnings reports, then easing off when the week's economic data -- Thursday's
retail sales
report and Friday's
-- come into view. "With bond yields close to 6.25%, any disappointment could give the market a bit of a hiccup," he said.
Mind you, just a hiccup, said Cardillo, who's not overly worried about the narrowness of many of the market's recent rallies: "The bottom line is that earnings are good. Inflation, even though higher, is still very much under control. And there's scant evidence that the economy is slowing. Until there are clear signs that the economy has slowed, that the bond market won't go much lower and that yields won't go much higher, than we'll have these hiccups along the way."
Today's strength wasn't exactly broad-based, though breadth has certainly been worse lately. In
Nasdaq Stock Market
action, decliners were narrowly beating advancers 1,803 to 1,740, with 102 new highs and 47 new lows. Advancers were trailing decliners 1,239 to 1,483 on the
New York Stock Exchange
, where there were 32 new 52-week highs against 72 new lows.
Of course, everyone loves tech leadership when it's in front of a rally.
"I don't have a problem with it as long as you start seeing better action from other areas as well, and we haven't seen that yet," said Brian Belski, chief investment strategist at
George K. Baum
in Kansas City, Mo. "We saw it last fall, when tech and Net stocks led the comeback, but we also had a nice rebound in retail and drug stocks. You can have a tech-led rally, but the market's at its strongest when you see some other areas run as well, as we did earlier this year."
Some other areas were in fact running this morning. Investors were finding oil and oil service stocks cheap after their recent selloff, with the
Philadelphia Stock Exchange Oil Service Index
was up about 2.3%.
Baker Hughes
(BMI)
and
Schlumberger
(SLB)
were each up about 4.3%. Crude futures were lately quoted at $20.84 a barrel, down 6 cents from Friday's New York close.
Drug stocks continued the rally they began in late September, the
American Stock Exchange Pharmaceutical Index
up about 0.8%.
Stock dealer
Knight/Trimark's
(NITE)
third-quarter profit warning (see below) was weighing on the brokers this morning. The
American Stock Exchange Broker/Dealer Index
was down about 3.3%.
The
Dow Jones Transportation Average
was solidly lower, lately down about 1.9%.
Among Net stocks,
Ask Jeeves
undefined
was up about 23.4% on an expanded deal with
Microsoft's
(MSFT)
personal online support site.
Yahoo!
(YHOO)
, meanwhile, was down 4.1%, letting off some steam from last week's earnings-inspired gains.
Belski thinks the market's at a relatively critical point, a point where one of two things can happen: "You saw the consequences of a narrowly led market prevail in August, when the Nasdaq was leading the way but the broker market was kind of shoddy. The broader market sucked those big stocks down. I think we're beginning to hit the same inflection point. Tech needs to lead the broader market higher, or the broader market needs to suck tech stocks down with it."
Suck away. Indefatigable
Qualcomm
(QCOM)
, whose remarkable run-up this year makes it an exemplar for top-heavy tech strength, was lately up another 6 3/4, or 3.2%, to 220 3/4.
Columbus Day was keeping volume light. On the NYSE, 371 million shares had traded, while 507 million shares changed hands on the Nasdaq Stock Market.
The bond and foreign exchange markets are effectively closed for Columbus Day.
Monday's Midday Watchlist
By
Tara Murphy
Staff Reporter
(
Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.
)
Vantive
(VNTV)
was soaring 3 5/16, or 37%, to 12 5/16 after
PeopleSoft
(PSFT)
announced plans to buy the unprofitable software maker for $433 million in stock. Vantive warned investors that it expects to post a third-quarter loss of 16 cents to 18 cents a share, greatly missing the eight-analyst break-even estimate.
Separately, PeopleSoft said it expects to report third-quarter results between break-even and a 2-cent profit, in the range of the 21-analyst estimate of a 1-cent profit.
Mergers, acquisitions and joint ventures
Ask Jeeves, a provider of natural-language, question-answering services on the Web, was soaring up 11 7/8, or 23.4%, to 62 1/2 after it said
Microsoft
(MSFT)
will expand its use of Ask Jeeves' "Corporate Question Answering Service" on Microsoft's personal online support site. Shares of Microsoft were skidding 5/16 to 94 5/8.
TSC
reported on the
deal in a story this morning.
Cisco
(CSCO)
was climbing 1/2 to 72 5/16 after it said it plans to make more than 20 acquisitions, spending up to $10 billion in cash and stock. President John Chambers said the company would buy various businesses in Europe, dealing with data, voice and video integration and software applications.
Deutsche Telekom's
(DT)
was declining 5/8 to 44 15/16 after its CEO told
Focus
, a German magazine, that Deutsche Telekom is pondering selling its 25% stake in
Global One
to
France Telecom
(FTE)
, according to a
Reuters
report. Shares of France Telecom were slipping 2 3/4 to 91 3/4.
Separately, German newspaper
Welt am Sonntag
said Deutsche Telekom is in talks with
SBC Communications
undefined
. However, the article didn't state whether the talks were regarding an alliance or a merger,
Reuters
reported. Shares of SBC Communications were unchanged at 52.
Entergy
(ETR)
was stumbling 7/16 to 28 1/8 after it said it has forged a $1.9 billion agreement to purchase turbines from
GE
(GE)
through 2004. GE shares were falling 3/4 to 124.
Global Crossing
(GBLX)
was tumbling 1 13/16 to 34 3/4 after it confirmed it's buying
Racal Electronics'
Racal Telecom
for roughly $1.65 billion. The news was reported in today's
Wall Street Journal
and
Financial Times
. Racal shares were 14 7/8.
National-Oilwell
undefined
and Norwegian oil service company
Hitec ASA
announced early Monday a definitive merger agreement valued around $125 million. Each Hitec share will be exchanged for 0.21259 of a National-Oilwell share plus 50 cents. Hitec, which supplies automation and remote control technologies for offshore oil and gas drilling and production, expects to sell its non-drilling related business to a new holding company effective with the acquisition.
National-Oilwell's offer, expected to be approved by the Hitec board, represents a 25% premium based on the last 20 trading days, the companies said. National-Oilwell was up 3/16 to 12 11/16.
Nokia
(NOK)
was climbing 3/8 to 99 7/8 after it said it will begin cooperation with
IBM
(IBM)
, which was advancing 1 3/4 to 115 3/16, in promoting and building mobile Net solutions.
Unisys
(UIS)
was stumbling 3/4 to 42 15/16 after it announced a multimillion-dollar agreement with
Dow Jones
undefined
, publisher of the
Journal
, as part of a redesign initiative for the editorial and pagination processes. Shares of Dow Jones were mounting 1 1/16 to 57 9/16 amid a generally strong newspaper sector.
XL Capital
(XL)
sliding 1 to 47 15/16 after it said it upped its bid for
Capital Re
(KRE)
to $13 per shares from its previous offer of $12.50 a share. XL said that it has extended a merger agreement with Capital Re, which includes paying a $25 million termination fee to
Ace
(ACL)
, severing Ace and Capital Re's existing merger pact. In addition, XL said it would supply Capital Re with $50 million in stand-by capital if they forge a deal to merge. Shares of Capital Re were falling 3/16 to 12 13/16.
Warnaco Group
undefined
was up 15/16, or 5.3%, to 18 3/8 after it said it has offered to buy
Authentic Fitness
(ASM)
for $20.50 a share in cash, a 16.7% premium over Authentic Fitness' closing price Friday. Shares of Authentic Fitness were jumping 2 3/16, or 12.4%, to 19 3/4.
Earnings/revenue reports and previews
Abbott Laboratories was climbing 1 5/16 to 42 1/8 after it posted third-quarter earnings of 38 cents a share, in line with the 15-analyst estimate.
Datastream Systems
(DSTM)
was falling 3 15/16, or 30%, to 8 13/16 after it said it sees third-quarter earnings of between a 1-cent profit, or a 1-cent loss, well below the four-analyst estimate of 16 cents a share.
Fastenal
(FAST)
was plummeting 6, or 12.6%, to 41 11/16 after it reported third-quarter earnings of 45 cents a share, a penny shy of the six-analyst estimate of 46 cents a share, but up from a year-ago 37 cents.
Gannett
(GCI)
was advancing 3/4 to 71 3/4 after reporting third-quarter earnings of 74 cents a share, beating both the 13-analyst estimate of 71 cents and the year-ago 62 cents a share.
Knight/Trimark
(NITE)
was sinking 4 3/4, or 16%, to 25 3/16 after it warned that it sees third-quarter earnings of 17 cents to 19 cents a share, citing slower trading. The 10-analyst estimate currently calls for earnings of 30 cents a share.
Merrill Lynch
cut the stock's rating to near-term neutral from accumulate and lowered its fiscal 1999 and 2000 estimates to $1.20 from $1.50 and $1.40 from $1.80, respectively.
TSC's
James Cramer
had his
say on the preannouncement this morning.
New Era of Networks
(NEON)
was popping 2 1/8, or 9.6%, to 24 1/4 after it said it see third-quarter revenue to be about $30 million to $32 million, a record for quarterly earnings. The company said it expects to report a net loss, about in line with estimates. The 10-analyst estimate calls for a loss of 18 cents a share in the third quarter.
Private Business
undefined
was skidding 1 5/16, or 27.2%, to 3 5/8 after it said it expected third-quarter and annual earnings to fall below analyst estimates. The company said it sees third-quarter earnings between 4 cents and 5 cents a share, and fourth-quarter EPS between 4 cents and 6 cents. The two-analyst estimate calls for 7 cents and 11 cents, respectively.
Analyst actions
Chevron
(CHV)
was mounting 1 9/16 to 86 15/16 after
Morgan Stanley Dean Witter
upgraded the shares to outperform from neutral.
CompX
(CIX)
was unchanged at 18 7/8 after
Banc of America
upped its rating on the shares to buy from Market performer.
Lehman Brothers
upgraded its investment opinion to outperform from neutral and raised its 2000 and 2001 earnings estimates for offshore drillers
Ensco
undefined
,
Global Marine
undefined
,
Noble Drilling
(NE)
, and
Rowan Companies
(RDC)
.
Lehman raised its 2000 estimate for Ensco to a profit of 15 cents a share from a loss of 10 cents and its 2001 estimate to an 85-cent profit from 55 cents. Global Marine's 2000 estimate was increased to 45 cents from 30 cents, and its 2001 estimate to 90 cents from 75 cents. Noble Drilling's 2000 estimate was raised to 85 cents from 75 cents, and its 2001 estimate to $1.20 from $1.10. Rowan's 2000 estimate was raised to a 20-cent profit from a projected loss of 10 cents, and its 2001 estimate was upped to 90 cents from 60 cents. All four stocks were up in early trading.
Galileo
undefined
was slipping 2 1/4, or 7.7%, to 26 7/8 after Morgan Stanley lowered its opinion on the shares to neutral from strong buy.
Glaxo Wellcome
undefined
was adding 2 7/8, or 5.9%, to 59 3/8 after Merrill Lynch upgraded the shares to intermediate-term accumulate from neutral.
MCG Communications
undefined
was bouncing 1 1/2, or 5.9%, to 26 13/16 after
Goldman Sachs
started coverage of the stock with a market outperformer rating.
MGM Grand
(MGG)
was climbing 2 11/16, or 5.9%, to 48 1/4 after
Credit Suisse First Boston
raised its rating to buy from a hold.
Norfolk Southern
(NSC)
was declining 13/16 to 21 11/16
J.P. Morgan
after downgraded the stock to long-term buy from buy.
Quantum-DLT
(DSS)
was gaining 1 3/8, or 11.9%, to 12 7/8 despite
Lehman Brothers
slicing its fiscal 2000 estimates to $1.36 from $1.53 a share.
Natrol
undefined
was jumping 1 1/4, or 16.1%, to 9 after
Banc of America Securities
upped its rating on the shares to strong buy from buy.
Rexall Sundown
undefined
was sliding 1/4 to 11 1/4 after Banc of America cut its rating on the stock to buy from strong buy.
Stryker
(SYK)
was jumping 4 1/16, or 7.5%, to 57 9/16 after
Deutsche Banc Alex. Brown
raised the stock's rating to strong buy from buy.
Texaco
(TX)
was up 11/16 to 61 1/2 after Morgan Stanley upgraded cut the shares outperform from neutral.
Zebra Technologies
(ZBRA)
was bouncing 1 5/16 to 49 1/8 after
ING Barings
rolled out coverage of the stock with a buy rating and a price target of 50.
Miscellany
British Airways
(BAB)
was falling 1 1/4 to 54 1/2 after it said it would buy 12
Airbus Industries
A318 planes for $471.4 million, and had options for an additional 12. The deal comes as a blow to
Boeing
(BA)
, which had hoped to sell its own 100-seater, the 717. Boeing shares were climbing 3/8 to 42 3/8.
DaimlerChrysler
(DCX)
was mounting 1 5/16 to 74 7/16 after it said it will invest $27.5 billion in Germany over the next three years. The money earmarked for Germany is part of a $47.7 billion worldwide investment package announced earlier this year. Staff reporter
Mavis Scanlon
contributed to this story.
Staff reporter
Mavis Scanlon
contributed to this story.
Herb on TheStreet: Is Bell Atlantic's Deal With Metromedia Fiber Really Worth Another $2 Billion in Market Value?
By
Herb Greenberg
Senior Columnist
10/11/99 6:30 AM ET
Judging by the way Wall Street has embraced
Metromedia Fiber Network's
undefined
deal with
Bell Atlantic
(BEL)
last week, you'd think such a deal
wasn't
expected. And you'd think investors knew how revenue from the deal would be recognized.
That's right: how revenue from the deal will be recognized.
Revenue recognition, in the case of Metromedia, should be a crucial piece of how anybody views the company.
To recap the news: Bell Atlantic agreed to buy 9.9% of Metromedia, which operates a telecommunications fiber network, for $28 per share. The purchase coincides with Bell Atlantic's agreement to give Metromedia $550 million worth of so-called "dark fiber" business over 20 years. (Dark fiber optics, so named because it is not illuminated, provides virtually unlimited bandwidth for transmitting data, voice and video.)
For a company like Metromedia, which currently books around $20 million a quarter, $550 million is a lot of money. The question is when Metromedia will be able to get its hands on it. Depends, apparently, on how it interprets a new industry accounting standard. (A company spokeswoman didn't return my call regarding this issue.) Just last month
Williams Cos.
(WMB)
, which runs its own fiber optics network, warned that it would miss third-quarter earnings in part because it had adopted a recently issued interpretation by the
Financial Accounting Standards Board
regarding any dark fiber transaction entered into after June 30. "This interpretation requires these transactions be treated as operating leases with related revenue recognized over the life of the agreements," Williams said in a press release.
If Metromedia reaches the same conclusion, it'll have to amortize the $550 million over 20 years. That would amount to little more than $20 million per
year
. Twenty million per year! Does that warrant what happened to Metromedia's stock just before and after the Bell Atlantic deal was announced?
Here was a stock that was trading at a mere 24, sporting a $4.8 billion market cap, a week ago Friday. At $4.8 billion, some short-sellers thought the stock already reflected plenty of deals like Bell Atlantic's. In the past week, however, Metromedia added another $2 billion in market value -- two billion for a deal that may not add any more than $20 million per year to revenue.
One other thing: Investors apparently were impressed that Bell Atlantic would pay $28 per share (not including a convertible stock deal that was also done at the same time). But as part of the deal Bell Atlantic gets what Metromedia calls "industry leading" prices. Exactly what are industry leading prices? A spokeswoman says they're the same volume discounts offered any large customer. She declined to provide details. To one Metromedia short-seller, though, any discount means that the $28 per share Bell Atlantic is paying for the stock really isn't $28. "If you're buying it at $28, and someone's slipping you $10 under the table, then the price is really less," he says.
The company doesn't see it that way: One price is a stock market price and the other is a product price.
Maybe so, but wouldn't the price the company pays for the stock depend on the discount it gets from the company? When a company like Metromedia has such a big market cap, a stock price of $36, a book value of less than a buck, no profits, loads of debt, a heavy cash-burn rate and lots of competition, that's a question investors ought to be asking.
Short Positions
Mattel/Learning Co. fallout:
"While your comments on
Mattel
(MAT)
and
TLC
are well-made, this isn't the only example of bad diligence out there," writes one obviously plugged-in reader. "Having been a front row participant in the consolidation game in the banking industry, I have to wonder if any CEO is really representing his shareholders. With the same bankers and lawyers negotiating the deals for both the company and management, one can only conclude that the only objectives are a bigger company so that the CEO can justify a higher compensation package and a sweetheart exit package for the selling management so that the acquirer can be treated accordingly when it's his turn.
"I never saw a deal that the advisors didn't like once the CEO was on board. What passes for due diligence is a joke!"
And from the update file:
Back in April, Marc Cohodes of
Rocker Partners
, no stranger to this column, was quoted
here as predicting that
Engineering Animation
undefined
would miss its second quarter after already having blown up for missing and having to restate past quarters. "Usually when you move the refrigerator and find a cockroach, in the tech business you find another one and another one," he said.
Well, EAII didn't miss the second quarter. Instead, on Oct. 1 it said that it would miss its third quarter and would have to restate second-quarter results.
Is there an exterminator in the house?
Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at
herb@thestreet.com. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.
Copyright 1999, TheStreet.com
