One New York money runner, who manages $400 million and makes sure he's fully invested in equities, seldom engages in short-selling. When he does, this money pro, who requests anonymity, has to feel that his case is airtight. He's shorting CNS (CNXS), which soared from 3 a share in 1994 to 25 by April, 1996, before easing to 18.
Sales of Breathe Right, which has turned into a near-wonder product, zoomed from $2.8 million in 1994 to $48.6 million in 1995. Breathe Right is a nasal strip to reduce, if not eliminate, snoring. Sales have been helped by some football players using the strip, thus attracting kids to the product.
CNS has become "a perfect stock to short," says the investment manager. He feels the first-half results reveal dire prospects ahead: "Earnings were headed in the wrong direction even as sales continued to climb," he explains. In the first half of the year, CNS posted operating earnings of $6.1 million, or 32 cents a share, down from $9 million, or 50 cents, a year ago. Sales, on the other hand, climbed to nearly $42 million from $26.3 million. In the second quarter ended June 30, 1996, operating earnings dropped to 15 cents a share, down from 37 cents a year ago.
"There is a big risk that the company won't hit the 77 cents the Street expects for all of 1996," he warns. When that happens, he says, expect the stock to head south--"down to 9, at best."
Analysts remain bullish, however. For 1997, they project earnings of $1.07. The money manager, however, expects about 85 cents. Breathe Right, cleared by the Food & Drug Administration in 1993, is being sold worldwide by 3M. CNS chairman and CEO Daniel Cohen says second quarter earnings a year ago were helped by lower advertising expenses and tax-loss carryforwards, so comparisons with this year's second quarter were affected. But he's comfortable with the analysts estimates for 1996 and 1997. Breathe Right, he adds, has penetrated only 7%-8% of households that could use the product. He sees 1996 sales rising to $85 million to $90 million.