Graveyard Gossip: More on Stewart Enterprises and Service Corp.

Also, Novartis' FDA run-in and more Iomega insanity.
Author:
Publish date:

The Wednesday wallop:

Dying to know:

The timing of

Service Corp.'s

(SRV) - Get Report

preannouncement

yesterday of a lousy quarter -- just before rival

Stewart Enterprises

(STEI)

was scheduled to do a secondary offering -- seems awfully suspicious. It's almost as if the folks at Service Corp. were saying, "If we're going down, we're taking them with us." After all, when a funeral company blames its problems on a falling mortality rate, it's sending a message that it's not company-specific.

As it turns out, Service Corp. could've used some of its own services yesterday, after falling 15 5/16, or 44%, to 19 1/8. Stewart remained relatively unscathed, losing just 3 7/16, or 16%, to close at 18. The word I get from several sources is that its stock deal is still on, but at whatever price will get it done. The company originally had hoped to raise $250 million; based on yesterday's price it'll be more like $225 million. Nobody from Service Corp. ever returned my call. Stewart wouldn't comment, citing the quiet period ahead of an offering.

Drug pipeline:

Novartis

last week received a warning letter from the

Food and Drug Administration

for failing to submit required copies of television ads, run last fall, related to its anti-cholesterol drug

Lescol

. The FDA chided the company for making misleading claims, such as claiming that the drug slows the progression of coronary atherosclerosis, and that the only difference between such competing drugs as

Pravachol

,

Mevacor

and

Zocor

is cost.

Sounds pretty bad, until you visit the FDA's warning letter

site and see that violations of advertising and marketing are not only common, they're downright routine. Two years ago, in fact, Novartis was slapped for similar violations of print ads for the same drug. "There's an awful lot of promotional materials going around," explains Norm Drezin, deputy director of the FDA's division of drug marketing, advertising and communication.

Worst case, however, the companies get a slap on the wrist because Drezin's department doesn't have any power to impose fines or other penalties. Wouldn't you think these companies -- especially companies like Novartis -- would know better? "Sorry, I can't comment on that," Drezin says. If nothing else, this shows why you can't always believe what you read or hear about any drug. In its admonishment, the FDA said Novartis' ads "resulted in a significantly larger consumer audience receiving false or misleading information about safety and effectiveness of Lescol."

Now

that's

comforting.

Beating a dead horse:

Well, it's not dead, yet. I'm talking about

Iomega

(IOM)

. When we

last left the company, we told you that two top execs, including Ted Briscoe, had left. Go back to Nov. 11 and read the

Wall Street Journal

story quoting insider trading experts and analysts as saying Briscoe's purchase of 200,000 shares of Iomega stock was a strong, positive signal. Bob Gabele of

CDA/Investnet

said there was "a sense of urgency" to his purchases. And Joe Beseker, president of

Emerald Research

, said: "This is a guy who can see on a day-to-day basis the company's inner workings ... For him to step up was extremely significant. I don't think he made this type of investment as a speculation to anything short-term."

Now that Briscoe has quit, Beseker can't be reached. And Gabele says the situation is very unusual. "Very few buy and then announce their resignations," he says. It was Briscoe's purchase, he adds, that "made me feel good about a buying cluster" by other insiders.

The only good news: The stock is still above where it was when he bought it. But according to Gabele, after April 29 -- six months from when he made his last purchase -- he'll be able to sell shares without a public filing. They love to tell ya when they get in, but not when they get out.

Clarifying:

An

item yesterday quoted money manager Carter Dunlap on his view on the disparity between stock values and the market. He didn't feel the quote reflected what he thought he said.

What he was trying to say: "Last year's move in the super-cap and big technology stocks has created a huge disparity in relative valuations within the market. The spread between the 50 largest-cap stocks and the broad market multiples is at a historic high. Part of this disparity makes sense. In a period of declining profit growth, investors are paying premiums for earnings growth and apparent quality.

"However, there is usually some continuum of multiples to expected earnings growth. In this environment, that continuum has a sharp break in it. That means there are some very interesting growth stocks selling a low absolute P/Es and very big P/E discounts relative to the biggest-caps. In 1998 the gap of valuations continually widened. My point is that it only has to stop widening for a lot of good growth companies' stocks to work out."

On that note, another column down the chute.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg writes a monthly column for Fortune and provides daily commentary for CNBC.