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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: Junkyardawg who wrote (47593)	6/2/1999 2:28:00 AM
From: BoneYardDog	Respond to of 90042

One more for you... Don't know what it is that you smell but my nose is still working... HPH: Rating Lowered to 4S on Liability Risk Salomon Smith Barney Tuesday, June 01, 1999 --SUMMARY:--Harnischfeger Industries--Machinery - Fiscal 2Q99 operating loss of $0.36 vs. loss of $0.07, below ($0.14) est. - Company takes additional write-offs on Beloit's order backlog - Corporate orders down approximately 18% year over year - Mining group orders down 27% year over year - Backlog down about 13.0% year over year - Paper orders off 1% year over year - Backlog off 47% year over year on write-offs - Vendors holding off materials shipments due to financing concerns - Management concedes "no assurances that . . . financing can be arranged" - Significant concern about equity value left in the business - Target price now $2 --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 10/98 EPS $0.39A $(0.07)A $(0.83)A $(0.47)A $(1.21)A Previous 10/99 EPS $(0.36)A $(0.14)E $0.08E $0.21E $(0.20)E Current 10/99 EPS $(0.36)A $(0.36)A $0.08E $0.21E $(0.43)E Previous 10/00 EPS $N/A $N/A $N/A $N/A $N/A Current 10/00 EPS $N/A $N/A $N/A $N/A $N/A Previous 10/01 EPS $N/A $N/A $N/A $N/A $N/A Current 10/01 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:4S Prior:3-S Price (6/1/99)......:$5.94 P/E Ratio 10/99.....:N/Ax Target Price..:$2.00 Prior:15.00 P/E Ratio 10/00.....:N/Ax Proj.5yr EPS Grth...:11.0% Return on Eqty 98...:19.9% Book Value/Shr(98)..:19.63 LT Debt-to-Capital(a)61.1% Dividend(98)........:$.40 Revenue (99)........:2440.0mil Yield...............:6.7% Shares Outstanding..:46.4mil Convertible.........:No Mkt. Capitalization.:275.6mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. Comments............: --OPINION------------------------------------------------------------------- We are lowering our investment rating on HPH to 4S from 3S due to growing concern about the company's viability, in amidst of ballooning debt, following orders and recent comments of vendors holding up shipments particularly to Beloit, the paper making machinery business. Moreover the company's new chairman is conceding that there can be no assurances that needed financing can be arranged in a timely manner. The company indicated that the proposed bank term loan has been cut to $95 million from $225 million due to a recent litigation decision--nonetheless, management and the board recognize that the company's liquidity needs are greater than $95 million. While it is difficult to determine how low the stock can go, we are establishing a $2 target price, which suggests that the company could slip into bankruptcy proceedings. While the company reported an operating loss of $0.36 in fiscal 2Q99 and below our ($0.14) estimate, the critical issues in the quarter were continued losses at Beloit, a 47% drop in Beloit's backlog (which suggests further losses for the balance of the year as shipments dry up), and a 27% drop in mining equipment bookings. While difficult end markets are clearly to blame, we believe that it is highly likely that possible machinery buyers are shying away from HPH as potential customers are worried about getting delivery from this beleaguered company. Indeed if vendors are unwilling to ship to HPH given concerns over payment, one has to believe that customers are worrying about the same viability issues. Corporate debt has ballooned to $1.28 billion from $1.12 at the beginning of the fiscal year and the company still needs more cash. The current debt equates to over $27 per share vs. roughly $6 equity value per share, and we suspect that the equity value is deteriorating daily. To be fair, mining equipment business probably is retaining significant value given Joy's strong franchisee in underground mining equipment and P&H's dominant market position as well, However, attributing a value to Beloit above $250 million is becoming extremely difficult. Thus, at best, we now believe that HPH's equity value comes to about $2 per share. We can not roll out the possibility for debt to equity swaps with the banks as a means for keeping the company afloat, and this might further dilute shareholders interests. Accordingly, we think that the 4S rating is now much more appropriates and we would prefer to swap into other machinery names such as NH, DE, CAT or TEX. Keep sniffing.. txdenis