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Walston &- Co. MEMBERS NEW YORK STOCK EXCHANGE AND OTHER LEAOING STOCK AND COMMODITY EXCHANGES NEW YORK PHILADELPHIA LOS ANGELES SAN FRANCISCO LUGANO (Swa,ld) OFFICES COAST TO COAST CONNECTEC BY DIRECT PRIVATE WIRE SYSTEM TABEll'S MARKET lEnER November 12, 1954 . Both averages have reached new high terri tory at 379.73 for the Dow-Jones Industrials and 128.05 for the rails. The renewal of investment confidence has been most impressive and the upside momentum is of such strong character that I am inclined to raise my intermediate term upside objective on the industrial average from my recent projection of 370-400 to 385-425. I would expect this objective to be achieved over the next six months. The recant rise'has been quite rapid, of course, and it is not expected to continue at its present pace. Any correction should meet support at the 370-365 level. As this letter has continually reiterated, this advance will continue to be selective. The price action of individual issues must be watched closely. Indiscrimate purchasing is not warranted. Some issues are reaching upside objectives and should be sold on current strength and the proceeds switched into other issues that will indicate higher levels. This type of action is not new. It has been going on since the advance started over five years ago. For example, in June of this year, the industrial average was around 330. Both General Electric and U. S. Steel were selling at around 47. Now four months later, the average is over 45 pOints higher and U.S.Steel is 14 points higher, but General Electric is 4 points lower. WESTERN UNION TELEGRAFH COMFANY Statistics While Western Union has ad- vanced quite sharply in price Current Market 67 since the stock was first men- Current Dividend 3.00 tioned several months ago in my Current Yield 4.4 wires and letters, it still appears to be an attractive Debt 44.4 million purchase for long term capital Preferred Stock appreciation. Recent earnings Common Stock (Shs.) 1,231,070 figures have been quite im- pressive. Tne nine months Net Per Share, 1953 6.77-A earnings of 4.50 per share Net Per Share, 1954 7.00-E just about equalled the 4.53 earned in the like 1953 period, Gross Oper.Revenue,1953, 220 million but third quarter earnings were Gross Oper.Revenue,1954, 218 million-E 1.82 as compared to 941 in 1953. Even more impressive was Market Range, 1952-1954 67 3/8-35 3/4 the earnings statement for the month of September, 1954. Earn- A – Excludes non-recurring income ings are issued monthly and this of 4.88 in 1953 year's September earnings equal- E – Estimated led 811, the highest comparable figure in twenty-five years, as against 461 in September, 1953. It appears that 1953 earnings of 6.77 a share, the highest Since 1947, will be surpassed in 1954. Western Union has done a tremendous job of modernization and mecha- nization since the end of World War II. This former prime blue chip sold at 272 in 1929 and 96 in 1936. It paid continuous dividends from 1874 through 1932 with 19261931 dividends equalling 8 per share. Since that time it has been plagued by high labor costs and the obsolescence of the old telegraph system. This has gradually been changed in recent years. In 1945, the company needed almost 65,000 employees to produce 192 million in gross operating revenues. In 1954, 39,000 employees will pro- duce approximately 218 million. A vast research program has unearthed – -2- entirely nevI techniques in the transmittal of written messages and the company, because of these new developments, now appears to be an expanding growth situation rather than the stagnant backward company of 1932 to 1945. Under the able management of VI. F. Marshall, the Presi- dent of the company, and his associates, Western Union has moved out of the real estate business into the electronics industry. For example, one of the greatest developments in communications is a machine called Desk-Fax which sends or receives telegrams in facsimile by the mere push of a button. This machine, when installed in business offices, cuts down labor costs considerably. By the end of 1954, twenty-thousand ' machineswill blnstalledand will.be s,e.nd;i.ng. andrcS'ivingtelegrams – – at- the rate of 16 million -annually —J..nother new development 'in- the fae'- simile field, Intrafax, sends messages within a single organization. It is used by (to mention only a few) organizations like ,merican I-irlines, American Express, American Red Cross, Bank of America, Bendix, Chemical Bank, E.I.duPont, Eastman Kodak, Federal Reserve Bank, Ford Motor, General Electric, Pan-merican, Standard Oil and U. S. Steel. In addition, there are 22,000 business offices equipped with teleprinter machines and private wires that are connected with tele- graph centers. Western Union is expanding private wire and facsimile services. A private wire system is being completed with the U.S.General Services Administration, providing a 15,000 mile nation-wide network. Since its merger with Postal Telegraph in 1943, the only compe- titor of Western Union is American Telephone which operates a private leased line system and a teletypewriter exchange service (TVIX). It has been recommended by Congress that Western Union acquire these communication systems and handle all domestic record communications. It would appear that this eventually will occur and that Iestern Union will be the sole company rendering telegraphic services. – — – 3jnce 1945; 'the- company-has spent over-125 mil-l-ion\lm-ost 100 a share) in mechanization and improvement of its plant and equipment. Approximately 20 million (over 15 a share) will be expended in 1954. Despite these vast expenditures, the financial condition of the company has improved. Debt has decreased from 84.7 million in 1947 to 44.4 million at December 31,1953. This amazing change, despite tremendous expenditures for modernization and improvement has been brought about by high charges for depreciation, equalling an average of approximately 11 a share annually since 1937. The cash flo(l earnings for Hestern Union in 1954, for example, will be approximately 19 a share or higher. Thus, on a cash flow basis, Vlestern Union is selling at about 3.4 – times earnings. This ratio compares favorably with airlines which are noted for selling low cash flow ratios. Sale of the company's investments in American District Telegraph and Teleregister Corporation in 1953 provided funds to retire bank loans and expand services. Book value of the common stock is roughly 140 a share. The stock has a very attractive technical pattern and has broken out on the upside of the long accumulation base in the 48-33 area in which it held since late 1950. The long term price objective appears tl2 be weI! over 100 share. ,.. EDMUND \11. TABELL vlf.lSTON & CO.