Publish date:

TheStreet.com's MIDDAY UPDATE

November 17, 1999


Market Data as of 11/17/99, 12:46 PM ET:

o Dow Jones Industrial Average: 10,933.86 up 1.53, 0.01%

o Nasdaq Composite Index: 3,304.79 up 9.27, 0.28%

o S&P 500: 1,421.75 up 1.72, 0.12%

o TSC Internet: 908.76 up 11.19, 1.25%

o Russell 2000: 458.52 up 1.64, 0.36%

o 30-Year Treasury: 99 31/32 down 27/32, yield 6.124%

In Today's Bulletin:

o Midday Musings: Nasdaq Stays on Pace for Another Record as Rates Rise
o Herb on TheStreet: Are Those Celestial Seasonings in Celestica's Financial Performance?

TheStreet.com Community

You know TheStreet.com's the place for great market commentary, but did you know it's also the place for intelligent investing discussion? From Cramer on the market to Dagen McDowell on mutual funds, we bring the conversation straight to you. Check out today's boards at:


Can't get enough great TSC conversation?

Then chat with Silicon Valley columnist Adam Lashinsky on AOL's MarketTalk at 4:30 p.m. EST. MarketTalk is hosted by Sage Online. (Keyword: PF Live)

Also on TheStreet.com:

Wrong! Dispatches from the Front: Who's Afraid of the Big Bad Bonds?

It takes the blush of youth to face rate fears with equanimity.


Trade Winds: E-Commerce Should Be Taxed

Government's failure to tax e-commerce encourages one form of commerce at the expense of another.


Telecom: Williams Communications May Tempt SBC

Wall Street is growing less enamored with bandwidth plays, but some analysts say big telcos are in the mood to buy.


Dear Dagen: Dear Dagen: Kaufmann Fund Saddles Shareholders With Big Distribution

Has your fund made an outsized distribution? Tell us about it.


Midday Musings: Nasdaq Stays on Pace for Another Record as Rates Rise


Eileen Kinsella

Staff Reporter

11/17/99 12:57 PM ET

Stocks paused for a breather this morning, after yesterday's runup left major proxies in tired but excellent shape.

With the exception of the hyperactive tech sector, which worked off excess energy for most of the morning, stocks were bouncing close to their opening levels. The

Dow Jones Industrial Average

was down 1 to 10,931, while the

S&P 500

was up 1 to 1421. The small-cap

Russell 2000

was up 2 to 459.


Nasdaq Composite Index

was slipping off its intraday high and was lately up 10 to 3305, remaining on pace for another record close.

TheStreet.com Internet Sector

index was still going strong, huffing up 11, or 1.3%, to 909, after closing at a record yesterday.

The October

Consumer Price Index

, which arrived in line with expectations, was treated as an afterthought, now that the real news -- a quarter-point rate hike from the


-- is official. If anyone is interested, the headline CPI gained 0.2% overall, meeting expectations, while the core rate, which excludes food and energy prices, gained 0.2%, also in line with expectations.

Profit-taking was weighing on the financial sector as heavyweights

J.P. Morgan

(JPM) - Get Report



(C) - Get Report

were pushed lower. The

American Stock Exchange Broker/Dealer Index

was slipping 3.1%.

Aside from this short-term -- and unsurprising -- dip, traders and strategists waxed optimistic about the overall economic backdrop. "Although I think there has been a shift in perception in the past few months, we have basically cashed that check," said Paul Rabbitt, president of


in Hermosa Beach, Calif. "The Fed would have been right either way." There is a group of people who would have said "fine" had the Fed left rates alone, while another group appreciates the pre-emptive action and thinks "now we won't have screaming inflation," said Rabbitt, adding there is an excellent balance between the stock and bond markets right now.

The benchmark 30-year Treasury was lately down 27/32 to 99 31/32, its yield rising to 6.13%. (For more on the fixed-income market, see today's early

Bond Focus.)

Dan Marciano, head of trading at

First Albany

, echoed the sentiment. "Now we have a little bit of respite until the Fed meets again," he said. "Especially if the numbers remain like they are, it's going to bode well for a neutral bias in the interest-rate environment." Marciano added that he doesn't think the effects of the three past rate hikes have been felt yet and they'll probably begin surfacing late in the first quarter of 2000.

But at least one strategist today thinks interest rates are not in the clear yet. "The risk is that interest rates continue to bounce, and that is worrisome, because the market psychology is different on a fourth rate hike than a third one," said Robert Robbins, market strategist at


in Atlanta. Robbins points out that the three hikes have all corresponded to prior cuts, and that investor concern might "easily start to rise" if talk of a fourth rate hike starts to get louder.

The transportation sector was getting socked after December crude oil futures hit $26.11 in Asia, 41 cents higher than New York's Tuesday close and the highest level since January 1997. The

Dow Jones Transportation Average

was sliding 2.3%.

On the

New York Stock Exchange

, laggards were beating leaders 1,671 to 1,226 on 519 million shares, while on the

Nasdaq Stock Market

, advancers were neck-and-neck with decliners 1,866 to 1,877 on a massive 950 million shares. New 52-week highs were edging out new lows 88 to 82 on the Big Board, while new highs were beating new lows 201 to 47 on the Nasdaq market.

Wednesday's Midday Watchlist

By Tara Murphy
Staff Reporter


Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified


Mergers, acquisitions and joint ventures


(BBT) - Get Report

is buying

Hardwick Holding

in a stock swap valued at $138.7 million. Shares of BB&T were off 3/4 to 35 15/16.

Dime Bancorp


said that its stockholders would get a larger share in a new mid-Atlantic regional bank that would be created under its planned $3.6 billion merger with

Hudson United Bancorp


. The banks said the change was necessary due to a 3% stock dividend that was set by Hudson yesterday. According to the new terms, Dime shareholder share holders will now receive 0.60255 shares in Dime United Bancorp for each share held, up from the initial 0.585 shares. Shares of Dime Bancorp were gaining 5/16 to 18 9/16, while Hudson United Bancorp was climbing 5/16 to 32 3/8.


(IBM) - Get Report


SBC Communications


have forged a pact to offer DSL Internet Consumer Service. Shares of IBM were falling 1 1/16 to 93 9/16, while SBC was adding 13/16 to 51 1/2.



is buying hotel-reservation technology designer


in a deal valued at $250 million. The transaction calls for Pegasus to issue 2.66 million shares in common stock and pay $115 million in cash and a $20 million note payable to

Reed Elsevier


Utell International

. Pegasus was sliding 7/16 to 47 3/4.



will sell tickets for the three major airlines it does not already serve,

United Airlines


American Airlines


US Airways


, and will take a one-time $1.1 billion charge related to the move. United is a unit of


(UAL) - Get Report

, while American is a unit of



. priceline.com was jumping 8 7/16, or 12.2%, to 77 5/16.

SatCon Technology


said it purchased

Northrop Grumman's

(NOC) - Get Report

power electronics products division, in a stock-warrant deal valued at $4.9 million. SatCon Technology was bouncing to 8, while Northrop shares were declining 1/16 to 53 7/16.

Vodafone AirTouch

(VOD) - Get Report

said it will increase its bid for Germany's



, in what could be the biggest takeover ever,

The Wall Street Journal

reported. The newspaper, citing people familiar with the situation, reported that Vodafone is pondering a bid valued at 220 euros to 230 euros a share, which would value Mannesmann at as much as 116.7 billion euros, or $120.59 billion. Earlier this week, Vodafone offered to buy Mannesmann; however, Mannesmann said no thanks. Shares of Vodafone were climbing 3/4 to 44 3/4.

Earnings/revenue reports and previews

Commerce One


was sinking 7 1/8 to 315 9/16 after it kicked off the

U.S. Bancorp Piper Jaffray

Internet conference with a word of caution.

"We expect a modest increase in revenues in the fourth quarter (from the third quarter)," Peter Pervere, the company CFO, told a packed group of investors this morning. "We are a relatively young company. We have a significant pipeline right now, but we want to set expectations conservatively."

By comparison, sequential revenue from the second quarter to the third quarter ended Sept. 30 grew 147% to $10.4 million. Commerce One is a provider of business-to-business software and services.


Suzanne Galante



was gaining 1/8 to 16 3/4 after it posted a third-quarter loss of 55 cents a share, narrower than the three-analyst estimate of a 57-cent loss and the year-ago 56-cent loss.

CBRL Group

(CBRL) - Get Report

was declining 3/8 to 13 1/8 after it posted first-quarter earnings of 25 cents a share, in line with the 12-analyst estimate but down from the year-ago 42 cents.

Consolidated Stores

(CNS) - Get Report

was hopping 3/8 to 20 1/2 after it posted a third-quarter loss of 14 cents a share, narrower than the 14-analyst estimate of a 17-cent loss and the year-ago 15-cent loss.


(DDS) - Get Report

was advancing 3/8 to 19 1/8 after it posted third-quarter earnings of 33 cents a share, missing the 13-analyst estimate of 38 cents, but up from the year-ago 47-cent loss.



was losing 1/2 to 47 after its President Kurt Hellstrom warned that problems in increasing handset output made it difficult for the company to meet its forecast operating margins for 1999. According to


, Hellstrom said during a briefing in London that the output is probably in the low end of its projected range but "within what we consider normal."

Goody's Family Clothing


was down 1/32 to 6 53/64 after it reported third-quarter earnings of 5 cents a share, in line with the four-analyst estimate but down from the year-ago 10 cents.



was stumbling 2 3/8 to 45 3/8 after it posted third-quarter earnings of 63 cents a share, beating the 13-analyst estimate by a penny and the year-ago 40 cents.

Offerings and stock actions



was jumping 2 5/16 to 108 11/16 after setting a 2-for-1 stock split.



was skidding 7 3/8, or 5.1%, to 135 15/16 after it announced that it is selling 6.6 million shares at $135 a share in a public offering.

Goldman Sachs


Terra Networks'


22.3 million-share IPO above-range at $13.41 a share. Shares of Terra were jumping 25, or 189%, to 38 15/16.

Analyst actions

Donaldson Lufkin & Jenrette

upped its rating on


(BUD) - Get Report

to buy from market perform. Shares of Anheuser Busch were adding 2 1/19 to 74 3/8.

Credit Suisse First Boston

analyst Mark Wolfenberger resumed coverage of



with a strong buy rating and a 12-month target price of 75. Shares of AppNet were gaining 1 1/8 to 52 5/8.

Lehman Brothers

raised its price target on

BEA Systems


to 110 from 75. Shares of BEA were climbing 9 5/8, or 13.2%, to 82 3/16.

Merrill Lynch

raised its intermediate rating on

Fuji Photo


to an accumulate from neutral and its long-term rating to buy from accumulate. Fuji shares were climbing 1 5/8 to 40 3/4.

Credit Suisse First Boston raised its fiscal 2000 estimates on

Home Depot

(HD) - Get Report

to $1.48 from $1.45 a share and its fiscal 2001 estimates to $1.85 from $1.80 a share and upped its price target to 100 from 75.75. Home Depot was edging up 7/8 to 81 1/4.

Deutsche Banc Alex. Brown

initiated coverage of



with a strong buy rating and a price target of 47. Inhale shares were popping 1 1/4 to 32 5/8.

Merrill upped its rating on

Lyondell Chemical


to near-term accumulate from neutral. Lyondell Chemical was up 1 11/16, or 11%, to 16 15/16.

DLJ raised its rating on


(ORCL) - Get Report

to buy from market perform, while

Merrill Lynch

upped its price target to 80. Lehman Brothers raised the stock's price target to 82 from 53 and J.P. Morgan upgraded shares of the stock to buy from market performer. Oracle was jumping 6 13/16, or 10.5%, to 71 5/16.


sliced its fourth-quarter estimates on

Pacific Gateway


to 5 cents from 21 cents a share. Pacific Gateway was hopping 3/8 to 17 1/2.

Robertson Stephens

started coverage of


(NAVI) - Get Report

with a buy rating. Shares of NaviSite were losing 1 7/8 to 55 1/2.

PaineWebber raised its fiscal 2000 estimate on

Network Appliance

(NTAP) - Get Report

to 79 cents a share from 74 cents and its fiscal 2001 estimate to $1.10 from $1.05 a share. Network Appliance shares were leaping 10 9/16, or 10.2%, to 114.

First Boston analyst Harry DeMott III, reinstated coverage of

Radio One


with a buy rating and a 12-month target price of 77. Radio One was declining 1/4 to 65 1/8.

Deutsche Banc Alex. Brown

rolled out coverage of



with a buy rating and a price target of 114. Shares of Sepracor were jumping 7 5/16, or 8.1%, to 98.

Wachovia Securities

upped its rating on

Tropical Sportswear


to strong buy from neutral. Tropical Sportswear was gaining 1 1/8, or 5.8%, to 20 3/8.

Banc of America Securities


Whole Foods


to a strong buy from buy. Whole Foods was advancing 4, or 12%, to 37.


British Telecommunications


announced that it has selected



as its preferred Internet filtering provider. Shares of British Telecommunications was plummeting 12 3/16, or 5.8%, to 197 13/16, while N2H2 shares were climbing 2 7/16, or 22%, to 13 5/8.


(F) - Get Report




are ratcheting up consumer rebates on some of their most profitable light trucks, the


reported. Shares of Ford were slipping 1 3/16 to 53 7/16 and DaimlerChrysler was adding 3/8 to 73 1/2.


(KMT) - Get Report

said it has hired

Goldman Sachs

to explore "strategic alternatives" regarding its

JLK Direct Distribution

unit, including selling it. Also, the company said it will incur special charges of about $25 million to $30 million in the quarter ended Dec. 31. The company plans to close, consolidate or downsize several warehouses, offices and plants and cut 400 to 500 jobs. Kennametal was sliding 3/16 to 29.


(KMB) - Get Report

was bouncing 1 13/16 to 68 13/16 after it said Thomas J. Falk has been named president and chief operating officer and will join the company's board of directors.

Stewart Enterprises


was climbing to 5 1/8 after it said that it has tapped President and COO William Rowe to become its new CEO after Vice Chairman and CEO Joseph Henican III resigned.

Herb on TheStreet: Are Those Celestial Seasonings in Celestica's Financial Performance?


Herb Greenberg

Senior Columnist

11/17/99 6:30 AM ET



(CLS) - Get Report

, a Canadian contract manufacturer, releases earnings, it touts something it calls "adjusted net earnings" per share. This is earnings per share


the write-off of goodwill and one-time "integration costs related to acquisitions," which in the case of Celestica is important because the company, a roll-up of contract manufacturers, has been on a takeover binge for the past two years.

What's more, adjusted earnings, which aren't prepared according to generally accepted accounting principles, are considerably higher than net earnings. (This year, analysts expected adjusted earnings to be $1.35 per share vs. 76 cents for net earnings.)

Herb's Latest: Join the discussion on


Message Boards.

Just one problem (as if you couldn't see this coming): None of Celestica's U.S. competitors have much in the way of goodwill or integration costs. Goodwill generally represents the cost of an acquisition in excess of book value; most U.S. acquisitions, if outright purchases, by Celestica's competitors have been done at or near book value. Others have been recorded as a pooling of interests, which eliminates goodwill as companies' existing financials are lumped together.

And about those pesky integration costs: None of Celestica's U.S. competitors, even those that have done large acquisitions, reports earnings


integration costs.

So why does Celestica do it? A spokesman says that under Canadian accounting rules ("because we have a majority shareholder who has multiple voting rights"), the company isn't allowed to do pooling acquisitions. And it breaks out integration costs, he says, because in the past two years the company has ballooned to 28 facilities from two. "We want people to see what costs are associated with growing rapidly."

Try telling that to short-sellers, who believe Celestica is trying to make itself look better than it really is. They argue that the goodwill, which is high, is high because Celestica has paid top dollar for many of its acquisitions. And they say that it's misleading to treat integration costs as one-time charges because they have occurred, like clockwork, for the past seven quarters. (The charges amounted to $8.1 million last year and nearly $5.3 million so far this year -- minuscule compared with adjusted earnings, but enough, several critics suggest, to help make reported forecasts. And making forecasts is important for a company that has raised $725 million in two stock offerings since March.) Aren't those expenses any company with a growth-by-acquisition strategy should have to live with?

The spokesman says no, because they're specific to each acquisition. And he adds that, "At a point when we're at a size where we report a core business relative to our peers,

those costs will be reported as part of our general operating expenses."

Did I hear him correctly? Treat it one way now and treat it another way later? (Yup, that's what he said not once, but twice. And, by the way, he ranks up there among the helpful "nice guys" of corporate mouthpieces; I really liked him.)

One other point: Until this year's third quarter, Celestica's cash flow had been negative. However, with the reporting of $70 million in positive cash flow, the company also reported that its payables -- the bills


owes -- stretched out to 69 days from 61 days the quarter before; the industry standard is 35 to 50 days. If payables had stayed the same, one short-seller says, cash flow wouldn't have gone up anywhere near as much as it did.

The spokesman says the company feels "there is more work to do on the balance-sheet side." But he adds that with a company growing as fast as Celestica, there's bound to be some "lumpiness" in the business.

That's one way to look at it. The shorts are looking at it another.

Short Positions

Rite Aid angst:


Rite Aid's

(RAD) - Get Report

story is that by Thursday it will disclose why its auditors,


, quit. (Such a saga!) What next?! Whatever it is can't be any worse. Or can it?! My colleague,

George Mannes

, tells me that Sunday night he went into a Manhattan Rite Aid to buy milk. (That's what they have grocery stores for, George!) "They have several gallons of milk in the fridge that they are selling past the expiration date," he says. "I ask to buy a watchband. Cashier points me to the watch corner. On the wall are racks and labels for about 30 varieties of watchbands -- maybe eight slots actually have watchbands in them. Meanwhile, a woman comes up to complain that the vitamin section doesn't seem to have been restocked in months."

Which is what happens when you've got too much debt.

Interest-rate reality:

Should've gone with my gut. There I was on our


show two weeks ago, doing what I like least -- making predictions. My prediction was that

Dave Kansas'

prediction from the week prior, that the




rates, would be wrong. (Being the economist I am not, I just felt another quarter-point boost was long overdue and necessary to remove this nagging uncertainty that was hanging over the market.)

Then, in a segment last week (thanks to another genius idea from our brilliant producer, Mr. TV, a.k.a.

Gary Schreier

), we were all asked what we thought the Fed would do. At that point, based on a string of lame indicators, I decided that while I thought the Fed


raise rates, it wouldn't. So I did the ol' floperoo and said rates will remain unchanged.

Wrong! Last time I don't go with my gut.

This plea:

Please, if you're in public relations or you compile listings of reporters and their beats, take me off your pitch list! I'm the


person to pitch


story to. For some reason I'm getting inundated with press releases. Apparently I'm in some book as


tech columnist. I'm not! And my emailbox is getting stuffed with press releases I don't read. (Ever heard of


? Ever heard of


? Ever heard of beat reporters?)

Lemme reiterate what I said at a recent conference in New York sponsored by


, an industry publication: Rather than blindly send out press releases or rely on press directories, try something novel: Read the publications yourselves to see who the right reporter should be.

Nothing like an insincere blind pitch to lose the attention of most reporters.

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