Story Stock - 06/13/2002

14:08 ET ******

Oxford Health (OHP) 49.90 -0.33: While the broader markets are challenging their September lows, managed care providers have been notable outperformers. Oxford Health is among the standouts, posting an 88% return since we reviewed it favorably on November 6th. Like many of the managed care providers, the Oxford story is not very complicated. This is a fundamentally sound business with a relatively low market valuation. Just last week, management increased its enrollment projections for the year, guiding to 6% growth for its commercial health plans membership versus prior guidance of 4%. Its accelerating enrollment-driven growth has been driven in part by lower premium increases versus its competition, new products and recent endeavors into new markets. On a longer-term basis, Oxford's outlook is predicated on continuing operational improvements, as well as an expectation for further acceleration in demand from the Baby Boom generation as it enters its high health care utilization years. Based on current prices, OHP trades at 14.5x estimates for the current year and 12.7x forward projections. With projected earnings growth (not membership growth) of approximately 14% this year and a longer-term projected growth rate in the same ballpark, we continue to view the shares as attractive at current levels. While health care stocks have fared well during the recent market downturn, we expect the group to continue outperforming as long as investors remain uneasy about the macro-economic and corporate earnings picture. In the specific case of OHP, we believe downside should be limited due to the company's improving fundamental outlook. Oxford Health remains a Briefing.com Value Core holding. -- Mike Ashbaugh, Briefing.com

13:36 ET ******

Hasbro (HAS) 14.29 -0.01: Overall market conditions and recent concerns over its Wizards of the Coast subsidiary have pushed HAS steadily lower over the past several weeks... But while the stock price has slumped, Hasbro's underlying business continues to show improvement... Company working hard to regain its footing after slump in Pokemon-related merchandise cut into sales last year... In addition to expanding its popular G.I. JOE line and playing up the 50th birthday of Mr. Potato Head, Hasbro stands to benefit from the popularity of "Attack of the Clones: Episode II," as it is the biggest Star Wars license holder... On that front, management has also shown that it learned from its mishandling of "Phantom Menace: Episode I" merchandise... The merchandising strategy surrounding the recently released Star Wars picture includes a greater number of action figures and a more active and sustained ad campaign... The company also eliminated the unsuccessful CommTech features... While "Attack of the Clones: Episode II" will play a large role in driving this year's sales, it's not the only movie that the company hopes to capitalize on... Hasbro recently introduced a new line of toys based on the soon to be released Disney animated film, "LILO & STITCH." If the movie is even a modest success, it should help bolster company's top-line growth... Other contributors to top-line growth include the success of the "Bob the Builder" brand and the increase in the number of its core game titles now available electronically... In addition to improving its merchandise mix, management is also paying down debt in an effort to bolster is balance sheet... As a result of these changes, street looking for company to earn $0.66 in FY02 (+61%) and $0.95 in FY03 (+44%)... If Hasbro can live up to these expectations, Briefing.com expects the stock to enjoy material multiple expansion in the months to come... Initial resistance is in the 17 area, with a secondary ceiling at 18.44 (52-wk high)... Supports are at 13.83 and 13. -- Robert Walberg, Briefing.com

11:29 ET ******

Del Monte Foods (DLM) 11.20 +0.45: Del Monte is hitting a new 52-week high this morning as it announced a deal with H.J. Heinz (HNZ 38.56 -3.04). Heinz's StarKist seafood, North American pet food, private label soup, College Inn broth, and U.S. baby food businesses will merge with Del Monte in an all-stock transaction. This will make Del Monte one of the largest U.S. branded food providers, with $3.1 bln in annual sales and 75% of its sales branded, two thirds of which are from number one brands. The deal includes the following brands: StarKist, 9- Lives, Kibbles ' n Bits, Pup-Peroni, Snausages, Naw somes!, Nature's Goodness Baby Food and College Inn broths... Wall Street had been speculating for the past year that Heinz would divest the businesses, which had been a drag on earnings for several years... Let's take a closer look at the deal. While growth in these businesses is not as great as you would like, the deal makes sense for both. The deal should allow HNZ to trade at a higher p/e multiple and makes it more appealing as a takeout candidate. For DLM, it's a cash cow. The deal bumps up free cash flow by a good amount which will be used on product enhancements and increased marketing spending in these new businesses. Also, the strong cash flow provides a stronger capital structure, allowing Del Monte to reduce debt. There are sizable synergies to be had: overhead, distribution center efficiencies, lower transportation costs, plant efficiencies and perhaps most importantly is the enhanced purchasing power and improved selling efficiencies. Bottom Line: Even with the slower growth, Del Monte expects to deliver EPS growth of 9%-11%. Before the deal, consensus EPS growth for next year (Jun 03) was 10.5%. So there's not much of a hit to bottom line growth, cash flow jumps and it makes DLM a bigger gorilla in the food business allowing them increased leverage with grocery store chains. Also, DLM trades at a very reasonable pre-deal p/e (Jun 03) of 11.9x. -- Robert J. Reid, Briefing.com

10:08 ET ******

Microchip Technology (MCHP) 30.00 +1.43: Every now and then, a company comes out with positive comments regarding its operations. Last night, Microchip Technology was among those companies, guiding higher for its fiscal first quarter. Management now sees first quarter earnings of $0.15 per share, modestly higher than the current consensus estimate at $0.14 per share. On the topline, the company expects sales to rise 14% year-over-year and 7.0-7.5% sequentially to $159-$160 million -- prior guidance had been for sequential revenue growth of 6%. Management cited improving market conditions in Serial EEPROMs (Electronically Erasable Programmable Read Only Memory chips) which is expected to generate sequential sales growth approaching double digits. It's worth mentioning that the favorable EEPROM dynamics should also benefit Atmel (ATML), the top worldwide producer of EEPROM, and STMicroelectronics (STM), the number two worldwide producer. Yet it isn't just EEPROM demand driving Microchip's outlook. The company is also experiencing solid growth in its Analog business, which is expected to rise about 20% sequentially. From a technical perspective, the one-year chart on MCHP illustrates its recent relative strength. Note that this morning the shares have edged above their 50-day simple moving average at 29.84. Assuming it can sustain a posture above this level, and perhaps get some help from the broader markets, don't be surprised if it challenges its 52-week high at 33.99 in the very near future. -- Mike Ashbaugh, Briefing.com

09:13 ET ******

Stocks to Watch : The futures are pointing to a lower open... Retail stocks could be weak as the Retail Sales report was significantly weaker than expected... Tyco Intl (TYC 10.15) gets a Merrill Lynch upgrade (however, Merrill is co-lead on CIT deal), saying the company is trading at the firm's "floor" valuation of $10 and that the CIT offering should substantially help to allay the mkt's liquidity concerns. The firm believes the stock could get into low to mid-20s. Separately, JP Morgan upgrades the stock... American Express (AXP 37.14) estimates are being trimmed by Merrill Lynch to reflect weak equity mkts... Hewlett-Packard (HPQ 17.96) gets positive comments from Merrill as it continues to recommend HPQ based on cost savings and a reasonable valuation... Auto component maker Dana Corp (DCN 17.80) raises its Q2 outlook to $0.41-$0.45 from previous range of $0.33-$0.35 thanks to continued operating improvements and even stronger N. American vehicle production... Lucent (LU 2.95) says it expects Q3 rev to decline by approximately 10-15% sequentially but it continues to target a return to profitability and positive cash flow during FY03... S&P 500 futures are trading 3.9 pts below fair value while Nas 100 PMI is -5.13. -- Robert J. Reid, Briefing.com