TheStreet.com's MIDDAY UPDATE
November 15, 1999
Market Data as of 11/15/99, 12:49 PM ET:
o Dow Jones Industrial Average: 10,782.47 up 13.15, 0.12%
o Nasdaq Composite Index: 3,234.13 up 12.98, 0.40%
o S&P 500: 1,397.26 up 1.22, 0.09%
o TSC Internet: 872.05 up 26.37, 3.12%
o Russell 2000: 451.88 up 2.19, 0.49%
o 30-Year Treasury: 101 04/32 down 6/32, yield 6.038%
In Today's Bulletin:
o Midday Musings: Market Coiling to Spring Higher on Fed, or So Everyone Thinks
o Herb on TheStreet: Why Problems at U.S. Franchise Could Spell Trouble for 'Choice' Competitors
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Midday Musings: Market Coiling to Spring Higher on Fed, or So Everyone Thinks
11/15/99 12:58 PM ET
The outcome of tomorrow's
Federal Open Market Committee
is hotly contested. Recent polls show economists evenly split. There are those who, pointing to declines in housing and recent new-paradigm-esque productivity numbers, think the
will stand pat. There are those who, pointing to a tight labor market and an economy that's still red hot, say the Fed will raise it's target rate by a quarter point. This meeting is as close a call as any in recent memory.
But oddly, the story today is not whether the Fed will move. Rather, the story is how little difference it will make for the market if the Fed moves. Or at least the market's perception that that's the case.
"I don't think it really matters," said John Manley, equity strategist at
Salomon Smith Barney
, who notes that no matter what the FOMC does, after tomorrow, it's done for a while. Short-term changes in corporate and consumer behavior around the millennium will likely have a distorting effect on economic data, making it hard for the Fed to get an accurate read on the economy until well into next year.
Moreover, the market's confidence in the
Fed is very high. If the FOMC moves, people will talk about how it has made an appropriate, pre-emptive move. If there's no move, people will talk about how the governors in their great wisdom have sensed a slowing economy, along with the requisite chatter about how Greenspan thinks there really is something to the new-economic-era notion.
"We think the Fed has it under control, they can do no wrong," said Manley. If, as he suspects, it does bump up rates tomorrow, "the market may take that as a short-term concern. But the effect will be felt in days if not hours."
Indeed, there's a sense that the Fed meeting may end up being a jumping-off point for a year-end rally that will take out the summer highs.
"We have melt-up time coming," said Sam Ginzburg, managing director of equity trading at
. "It seems as if there's a lot of money to be made here. The buying is going to feed on the buying."
One wonders what Alan Greenspan, who's gone out of his way to talk about how dangerously overvalued stocks are, thinks about this Fed meeting becoming the market's springboard to ever loftier heights.
By midday, the day turned positive, though things were somewhat subdued. The
Dow Jones Industrial Average
was lately up 13 to 10,782. The
was up 1 to 1397.
Nasdaq Composite Index
, up 13, or 0.4%, to 3234, was on track for yet another record.
TheStreet.com Internet Sector
Index was also in record territory, up 27, or 3.1%, to 872.
was up 2 to 452.
Breadth was mixed on good volume.
New York Stock Exchange:
1,408 advancers, 1,428 decliners, 433 million shares. 67 new 52-week highs, 67 new lows.
Nasdaq Stock Market:
2,104 advancers, 1,698 decliners, 705 million shares. 164 new highs, 48 new lows.
Monday's Midday Watchlist
shored up its energy over the weekend and was lately carrying over the momentum from Friday's trading debut. Shares of Finisar were flying 26 7/16, or 30.5%, to 113 1/4, and was among the Nasdaq's top gainers.
Meanwhile, on the Big Board, shares of
were popping 20 1/8, or 40.5%, to 70 after yesterday's announcement that it will be acquired by
in a stock deal valued at $1.8 billion. Under terms of the deal, Corning will swap 0.83 of a share of its stock for each of Oak's shares. The deal, which signifies a 51% premium over Oak's 49 3/4 closing price Friday, will enable Corning to offer both components and modules for optical communications. Shares of Corning were slipping 1/2 to 89 7/8.
Mergers, acquisitions and joint ventures
Air Express International
inched up 1/16 to 32 5/16 after saying it will be bought by European parcel giant
in a deal valued at $1.14 billion. The transaction calls for Deutsche Post to combine Air Express into its
freight forwarding division.
Associates First Capital
was unchanged at 34 after saying it plans to acquire
for $200 in cash along with security obligations. Arcadia gained 7/8, or 23.3%, to 4 5/8.
fell 1 1/4, or 8.7%, to 13 1/16 after saying it will merge with the specialist asset valuation business (FTAM) of the
group, which is part of
. Under the deal, the FT group will transfer ownership of FTAM to Data Broadcasting in exchange for a 60% stake in the combined business. Data Broadcasting owns about 32% of
, which operates
, a competitor of
. Under the deal,
, will form an international and domestic marketing alliance.
owns a third of MarketWatch. CBS rose 1 1/8 to 52 15/16, while MarketWatch added 1/2 to 49 5/8.
climbed 1 1/8 to 73 5/8 after saying it forged a two-year contract, worth roughly $100 million, with
to expand and improve ITC DeltaCom's current voice and data networks. Shares of DeltaCom lost 3/8 to 28 1/16.
gained 4 5/8, or 8.3%, to 61 1/14 after saying it has inked a deal with
lately up 1 1/8 to 54 1/2. The two companies said that they would roll out test-marketing for a "name-your-own-price online" buying feature for Ford Motors in Florida this week.
Separately, priceline said more than 1,000 stores are participating in its grocery unit. The priceline WebHouse Club, launched Nov. 1 in the New York metropolitan area, said more than 120
stores will join the unit in the coming weeks.
said it plans to buy
for $647 million. Red Hat also said it tapped Matthew Szulik as its new president and CEO.
joint newsroom covered the
news in a separate story.
gained 1/16 to 42 15/16,
rose 1 3/4, or 10.5%, to 18 3/8 and
jumped 3 7/16, or 15.7%, to 25 7/16, after the firms are announced plans for a new online investment bank along with three venture capital firms. The VC firms are
Kleiner Perkins Caufield & Byers
announced plans to sell its
in a cash transaction valued at $625. Shares of Earthgrains dropped 1 1/4, or 6%, to 19 11/16.
rose 3/16 to 47 9/16 after its all-stock $107 billion bid for
was rejected. Mannesmann called the offer "extremely unattractive" monetarily, stirring up rumors that Vodafone will launch the largest hostile takeover bid in history in an effort to gain control of Mannesmann. Industry sources told
that Mannesmann plans to explain to its shareholders today and Tuesday why it refused the offer.
, which has agreed to merge with
American Home Products
, is considering terminating its
, which has made an unsolicited takeover bid for Warner. Pfizer and Warner have a co-marketing deal for Lipitor, the blockbuster cholesterol-fighting drug. Shares of Warner lost 1 1/16 to 92 9/16, American Home Products slipped 15/16 to 55 and Pfizer slipped 1/8 to 35.
Earnings/revenue reports and previews
Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.
fell 2 7/8 to 55 after it posted third-quarter earnings of 44 cents a share, beating the 20-analyst estimate of 42 cents a share and up from the year-ago 33 cents a share.
fell 13/16 to 32 1/16 after it posted a third-quarter loss of 41 cents a share, wider than the three-analyst estimate of a 27-cent loss and the year-ago 37-cent loss.
Toys R Us
added 9/16 to 17 1/16 after it posted third-quarter earnings of 13 cents a share, beating the 10-analyst estimate of 9 cents a share and up from the year-ago 8 cents.
Offerings and stock actions
VA Linux Systems
, which provides Linux-based systems and software, set its IPO at 4.4 million common shares in a projected price range of $11 to $13 a share.
gained 1 5/8, or 5%, to 34 after it set a 4-for-3 stock split.
lost 2 to 107 despite a positive outlook from
which upped its 1999 earnings per share estimates to $1.77 from $1.73 and 2000 estimates to $3.00 from $2.85.
Credit Suisse First Boston
started coverage of
with a buy rating and a price target of 40. Shares of AnswerThink were hopping 1 3/16 to 28.
upped its rating of
to a strong buy from a buy and set a price target of 250. Ariba was soaring 17, or 8.6%, to 212 7/8.
SG Cowen initiated coverage of
with a strong buy rating. Crossroads was popping 7 1/16, or 8.9%, to 86 5/8.
initiated coverage of
with a buy rating. Intimate Brands was edging up 3/16 to 38 1/8.
Deutsche Banc Alex. Brown
sliced its rating on
to buy from strong buy. Masco was declining 11/16 to 28 11/16.
started coverage of
Martha Stewart Living Omnimedia
with near-term accumulate and long-term buy ratings.
Morgan Stanley Dean Witter
rolled out coverage of the stock with an outperform rating. Martha Stewart was down 11/16 to 30 1/8.
Warburg Dillon Read
initiated coverage of
with a buy rating. PC-Tel was up 1/4 to 38.
to a market perform from market outperform. Pep Boys was climbing 3/8 to 10 1/4.
Merrill Lynch analyst Jeff Kaufman raised his rating on
to a long-term buy from accumulate. Rollins Truck shares were gaining 1 1/16, or 10.6%, to 11 1/16.
Merrill reinstated coverage of
with a buy rating and named it a Focus One selection. Staples was mounting 2 3/4, or 12.5%, to 24 3/4.
upped its fiscal 2000 earnings-per-share outlook for
to $2.20 from $2.10. Tyco was hopping 7/8 to 43 7/8.
Deutsche Banc Alex. Brown initiated coverage of
with a buy rating, while Merrill also stamped it as a buy. Zapme! was off 1/2 to 12 1/8.
Chairman Alan Greenspan expressed his approval for a new law removing Depression-era statutes, which enforced the separation of banking, brokerage and insurance activities, during remarks to the
American Council of Life Insurance
said it has been awarded a contract for digital subscriber line broadband Internet protocol equipment from German Internet service provider
. Nokia shares were slipping 1/2 to 121 3/4.
said it has named Leonard Green chairman, while Timothy Noonan will continue as interim CEO.
joint newsroom covered the news in a
rose 1 1/16 to 37 15/16, despite news that the Connecticut attorney general was suing it for alleged slamming.
Herb on TheStreet: Why Problems at U.S. Franchise Could Spell Trouble for 'Choice' Competitors
11/15/99 6:30 AM ET
Hotel hit parade:
The 68% slide in
U.S. Franchise Systems
stock in the past four weeks can be attributed, in part, to problems specific to U.S. Franchise. But according to industry observers, the numbers also reflect trouble in lodging land.
Herb's latest: Join the discussion on
"The lodging franchise business is no longer profitable for franchisees," says one hedge fund manager and longtime industry observer. He notes that U.S. Franchise said its franchisees could no longer profitably build hotels because of slower lease-up times relating to oversupply. "As a result," he says, "the franchisees are pulling back projects. The lodging franchise business -- as opposed to the hotel ownership business -- is a unit growth business."
What's more, U.S. Franchise told analysts that such brands as
Red Roof Inns
Choice Hotels International
(also owned by Choice) and
) were offering incentives of as much as $100,000 per hotel for franchisees to build their brands. U.S. Franchise, in response, said it would not hold back development and instead would match the incentives.
"Their theory is that by spending now, they will build their brand for years to come and crush the newer upstarts," our hedge fund source says, quickly adding: "Who do these guys think they are,
? As a result, margins should be crushed along with revenue for everyone." (And that doesn't even take into account rising labor costs; hotels compete with the likes of
for employees -- and look how they're being forced to raise prices to get quality help.)
The result, according to our hedge fund source: The U.S. Franchise fracas is merely the first warning "of deterioration in the limited service franchised lodging sector." Why then haven't any other franchisees been warned? Because, according to our source, U.S. Franchise CEO Mike Leven "is notoriously communicative with his franchisees, and he's probably just ahead of the curve."
Most vulnerable, our source believes, are Choice Hotels,
, Cendant and Accor. But Accor and Cendant are well-diversified companies, and Promus is in the process of being bought by
. That leaves Choice as the only pure play among public companies in the low-end, budget and midpriced hotels. In other words, a direct competitor to U.S. Franchise.
Choice officials didn't return several calls. But one Choice competitor said that, unlike U.S. Franchise, which is in the process of building its chain, Choice already has 4,000 units. "Ninety-seven percent of its revenues come from stable properties," compared with U.S. Franchise, which gets very little of its revenue from existing properties.
Even our short-selling source doesn't argue with that. But the way he sees it is that
slowdown in growth, combined with the general industry slowdown and other margin pressures, won't help -- especially for a stock, such as Choice's, that assumes the growth will continue.
For more Herb, see today's second installment of Herb on TheStreet.
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
firstname.lastname@example.org. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.
Copyright 1999, TheStreet.com