Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: NASDAQ Amex Market Date: Tue, 27 Oct 92 16:00:26 EST Message-ID: <7.1992Oct27.160026@AmeriCast.com> 10/27/92 TITLE NASDAQ Amex Market Big-Name Tech Stocks Push Nasdaq Higher U.S. Healthcare Sinks HMO Group; Software Rally Narrows Lance Ig- non A disappointing earnings report from U.S. Healthcare Corp. sparked a meltdown among health maintenance organization stocks yesterday, but strength among selected technology issues helped balance overall results. U.S. Healthcare- plunged 63/8, or 13%, to 433/8 after third-quarter results showed expenses rising and margins shrinking even though the com- pany generally met earnings expectations. Nearly nine million shares traded, seven times average. Despite U.S. Healthcare's trouble, the Nasdaq composite index added 1.62 points, or 0.27%, to 598.92. Advances outpaced declines 1,232 to 1,149 as volume contracted 26% to 169 million shares. The listed exchanges fared better. The New York Stock Exchange composite index rose 0.85% and the American Stock Exchange market value index picked up 0.51% as winners led 261 to 236. U.S. Healthcare reported a third-quarter profit of 44 cents a share - up 22% from a year ago. Zacks Investment Research Inc. had been looking for 45 cents and Institutional Brokers Estimate System Inc. forecast 44 cents. Smith Barney, Harris Upham & Co. analyst Geoffrey Harris called the report "disappointing" and lowered his recommendation to hold from buy and trimmed his earnings estimates. Harris said the HMO's operating earnings grew only 14.7% compared with a 35% in- crease in the second period and 30% in the first. Net income would have been weaker had it not been for an investment profit, which Harris estimated added between three and four cents a share. Harris cut his 1992 estimate by two cents to $1.78 a share and lowered his 1993 outlook by a nickel to between $2.15 and $2.20 a share. The Blue Bell, Pa., company earned $1.40 a share last year. Harris acknowledged that the margin erosion may be only temporary. "But if (the report) is a signal of a slowing growth rate, you don't want to be out there hanging on to a stock with a multiple in the 20-25 range of next year's earnings," he said. Other analysts had more upbeat interpretations of the report. Salomon Brothers Inc. analyst Margo Vignola estimated that the company realized a gain of about a penny a share from its invest- ments and said a influx of new members will boost fourth-quarter results beyond most expectations. She expects U.S. Healthcare to earn 49 cents in the fourth period - 23% better than a year be- fore. Vignola is looking for $1.80 a share for the year. Still, Vignola said she was concerned that the company's medical-loss ratio -the difference between expenditures and the amount gar- nered from premiums -rose to 78.3% from 77.2% a year ago. As a result, its operating margin slipped to 14.1% from 14.7%, she said. U.S. Healthcare's fall gave investors an excuse to take profits from other HMOs, which have been among the market's strongest issues for several weeks. PacifiCare Health Systems Inc. Class A was off 2 to 421/4, TakeCare Inc. 17/8 to 461/2, Ox- ford Health Plans Corp. 11/4 to 417/8, United Wisconsin Services Inc. a point to 381/2 and Mid Atlantic Medical Services Inc.- 7/8 to 167/8. Unexpectedly low earnings sent Tokos Medical Corp. down 41/8 to 185/8. Trading of 2.3 million was five times usual. The provider of health-care services for pregnancies re- ported a third-quarter profit of 14 cents a share - a penny better than a year ago but 11 cents below the average expecta- tion, according to Zacks. Heavy trading in a few big technology names provided a safety net for the market. Intel Corp., for instance, added 11/2 to 681/2 and Microsoft Corp. 13/8 to 90. Apple Computer Inc.- , which has been upgrading products and introducing new ones, rose 23/4 to 511/2. The stock has risen more than seven points in the past two weeks. Sun Microsystems Inc. followed through on Friday's gain by rising another 13/4 to 333/4. The climb was powered in part by short covering. Bernard G. Schaeffer of Cincinnati noted in his Market Intelligence Fax newsletter that put options equivalent to 310,000 Sun shares were purchased just prior to the company's earnings report last week. Although profits came in below expec- tations after Thursday's close, the stock started to rise, forc- ing shorts to cover, when analysts touted the company's new Sparcstation 10 workstation. Among software developers Adobe Systems Inc. surged 27/8 to 333/8, Progress Software Corp. 13/8 to 543/8, Parametric Technology Corp.- 11/8 to 505/8 Sapiens International Group a point to 133/8. But Marcam Corp. lost 25/8 to 221/8. Investors also gave the hook to entertainment software developer Electronic Arts Inc.- , which fell 21/4 to 323/4. The stock had nearly doubled this year prior to yesterday's decline but had become particularly volatile in recent weeks. Analyst Scott Smith of Donaldson, Lufkin & Jen- rette Securities Corp. lowered his recommendation to attractive from buy based on what he said was the stock's lofty price. Oth- erwise he had plenty of praise for the company and said its long-term prospects remain strong due to its exposure to enter- tainment, cable television and computer technology. Still, he said the company's profit growth is unlikely to equal last year's pace, when profits grew 74%. For fiscal 1993 ending March, Smith is looking for earnings to grow 39% to $1.15 a share. He expects the company to earn 42 cents in the next quar- ter, up 17% from a year before. That's a sharp slowing from the average gain of 94% during each of the four most recent quarters. McCaw Cellular Communications Corp. Class A tacked on 13/4 to 24 after saying that it has not asked banks to refinance its debt. Also, DSC Communications Corp. added another 15/8 to 161/8. DSC has nearly tripled since August. Several Israel-based companies saw their stocks perk up. One analyst, who asked not to be identified, said a newly formed closed-end fund based in Israel has been scooping up the issues. Elbit Ltd. tacked on 17/8 to 405/8, Scitex Ltd. 13/4 to 411/2, ECI Telecom Ltd. 17/8 to 303/4 and Lannet Data Communications Ltd.- 11/2 to 271/4. Elsewhere, Stewart & Stevenson Services Inc.- , which makes turbine engines, rose 21/4 to 32 - a new high. The stock has been making gradual headway since May despite a 94% de- cline in third- quarter earnings. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM