(FORTUNE Magazine) – TENDING TOTS MAKES A STOCK HOT

Richard Niglio--a onetime NFL draftee, Kentucky Fried Chicken exec, and former CEO of Mister Donut of America--is gobbling up day-care centers. He now heads Children's Discovery Centers of America, which tends some 24,000 kids a day in 227 centers. Many of the customers are corporations like General Motors, IBM, and Xerox, which have contracted with Children's Discovery to run their day-care facilities. Such deals, along with a number of acquisitions, made 1994 net income spurt up 150%, to $2.8 million, on revenues of $55 million. Rodman & Renshaw analyst Robert Junkin expects Children's Discovery to continue devouring munchkin outfits at a rate of some 70 per year. Junkin looks for a 30% annual increase in earnings over the next five years.

The $9 billion for-profit industry is highly fragmented, with tens of thousands of providers. Since local brands are king, the company keeps the original managers and such familiar monikers as Lollipop Farm, of Lincoln, Nebraska, when it pulls foundlings into its corporate fold.

The acquired centers gain a link to the company's computer network, which helps push down burdensome labor costs. The computers optimize staffing levels by monitoring the number of students and teachers in each classroom. "Staffing is a tightrope you walk," says Niglio. "If it's too little, your customers will go away, or you might lose your license. If it's too much, you go broke."

The company, which is based in San Rafael, California, is also developing centers near industrial parks and business districts for groups of employers that may not otherwise be able to afford child-care facilities. In addition, it manages before- and after-school programs for 6- to 12-year-olds (an older crowd than usual) at most of its locations. The company also operates a handful of private elementary schools.

PLAYING A TRICKY HAND

Shares of Shuffle Master have more than doubled since last February, to $16, on the prospect that its as-yet-unproven card tournament Let It Ride can fill an inside straight for investors. Recently approved in Nevada, the game is a variation of stud poker with a side jackpot that would progressively grow to million-dollar proportions by linking up tables in different casinos. The company take is 12% of that pot.

The stock run-up gives the Eden Prairie, Minnesota, company a market cap of about $150 million--a bit staggering for an outfit whose core product is an automatic card shuffler that reduces downtime at casino tables. The shufflers brought in only $3 million in revenues in the past two quarters, and first-time profits of $400,000.

How much the stock is worth depends on who's dealing. Analyst Robert Evans at John G. Kinnard recommends a buy. Robb Knie, a short specialist who publishes Equity Advisory, is less impressed. He thinks it is a $7 stock.

The tournament that so much is riding on is about to get under way in over 65 casinos, with the first playoffs scheduled for October at Bally's in Las Vegas. Shuffle Master's resourceful CEO, John Breeding, a former truck driver who invented the shuffler and the game, expects 200 tables across Nevada to participate and will test a videogame version come fall.

Don't bet the house on this one.

SWITCH NICHE

Telecommunications deregulation is racking up revenues for Summa Four of Manchester, New Hampshire. The company earned only $5 million of profits on sales of $37 million in its fiscal year ended in March, but it counts AT&T, MCI, the Baby Bells, British Telecom, and Hewlett-Packard among the customers for its programmable switches. The devices give telcos a competitive edge by enabling them to offer new services such as voice-activated dialing, voice mail, and redirected 800 numbers. By hooking a Summa Four switch to a traditional, mainframe-like central office switch, new functions can be added in just a few months, instead of the years it takes to modify a central switch.

Be warned: This stock is volatile. It recently dived six points, to around $24, on news that sales to two major long-distance customers are being delayed because of prolonged product testing. But Douglas Ashton, an analyst at Hancock Institutional Equity Services, says that such scrutiny is not uncommon. He thinks the stock will bounce back to $38 within a year, helped by the burgeoning wireless market. CEO Barry Gorsun identifies wireless as "one of our largest upcoming opportunities," where the company's products can be used not only to offer enhanced services but also as main transport switches.