Strained earnings, debt load pose problems for Mesa Limited

Answering the mail

September 11, 1991|By Andrew Leckey

Q.What are your thoughts on Mesa Limited Partnership? I've followed it for some time and can't decide about the value of this investment.

A. Low natural gas prices are the underlying problem.

That, coupled with a heavy debt load, should limit the performance of Mesa Limited Partnership (around $2 a share, New York Stock Exchange), a firm specializing in oil and gas exploration and production, said Frederick Leuffer, analyst with C.J. Lawrence, Morgan Grenfell Inc.

Although Leuffer switched his "sell" recommendation to a "hold" this summer, he holds little enthusiasm for the shares of this firm run by famous entrepreneur T. Boone Pickens Jr.

"In order for Mesa to break even in natural gas, you'd have to

have natural gas selling at $2 per 1,000 cubic feet, and we're predicting it will sell for only $1.30 this year," explained Leuffer. "Even though it has shored up its balance sheet, Mesa's strained earnings, coupled with its debt load, pose potential problems."

Q. I have finally caught the bug to invest in telephone company stock, as my broker has been recommending. What do you think of GTE Corp.?

A. Your broker isn't giving you a wrong number.

Buy shares of GTE Corp. (around $30, NYSE), the biggest non-Bell telephone system, because telephone industry stock prices are currently quite reasonable, said Dan Hagen, analyst with Piper, Jaffray & Hopwood Inc.

"This is the right time to be a buyer, since the group should be performing better and these prices will increase your total return," said Hagen. "Looking within this industry, I like GTE a lot, because it has superior earnings potential vs. the large Bell companies."

Q. I am a little nervous about my investments and am considering selling my shares of Wallace Computer. What's your opinion?

A. Hold your shares of business forms firm Wallace Computer Services (around $21, NYSE) awhile longer, recommended Chuck McDonald, analyst with William Blair & Co.

"Right now, there is too much capacity in the business forms industry," explained McDonald. "Because Wallace is making the right move in diversifying, it is faring better than most other companies."

However, the overall timing is still not right for the industry, what with tight competition and a business slowdown. So you should hold and not buy more at this time, he concluded.

Q. I recently found a certificate for Miniature Instruments Inc. in my attic which must have belonged to the previous owner. I'm hoping that I'm a newfound millionaire and can pay off my mortgage. What do you think?

A. Unfortunately, this company had miniature profits as well.

Miniature Instruments Inc., based in Minneapolis, is no longer in existence, according to Robert Fisher, vice president with the New York-based R.M. Smythe & Co. stock-search firm.

That troubled company's assets were sold at auction by the Small Business Administration in 1974 and there was no equity remaining for its stockholders.

Q. My husband and I own a small manufacturing company that is in need of a car for deliveries. We want to give the company our small van. How do we handle this transaction for the company's tax return?

A. If the van is given to the company, it is treated as a capital contribution, said Barbara Pope, tax partner with Price Waterhouse.

"The basis of the company stock would increase by the current fair market value of the van," Pope explained. "Assuming it is less than the original cost of the car, the company would then be entitled to deduct any expenses, including depreciation related to business use of the van."

Q. I currently own stock in Uno Restaurants. Considering that the price has recently fallen, should I continue to hold?

A. Hold your shares in Uno Restaurant Corp. (around $12, over the counter) with the expectation that an improved economy and the fruits of its expansion efforts will enhance future stock performance, said Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

The company operates and franchises 94 Pizzeria Uno restaurants in 21 states and nine more are expected to open in its 1991 fiscal year. Earnings per share rose 20 percent last year, but the recession and new store costs have hurt this year's results. The stock price has fallen.

"Uno's next earnings are due in November and, even though they may not equal 1990's results, the healing process is under way," said Conway. "Better days likely are ahead."

Q. I bought 250 shares of Exabyte Corp. Are they worth keeping long-term?

A. Shares of Exabyte Corp. (around $21, OTC) should be held, since the company will likely be a big beneficiary of the eventual upturn in the computer industry, said Richard Wholey of Chicago-based Wayne Hummer & Co.

Exabyte develops, manufactures and markets high-capacity 8-millimeter tape subsystems which are used to back up and store computer data. Until recently, sales and earnings growth had been rapid.

"The weak economy has hurt Exabyte as it has other computer-related companies," said Wholey. "Yet it is a profitable, well-regarded company with excellent products."

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611.

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