|
|
Enron Mail |
Good Wednesday Morning - Comments From The Local Guys! As can be seen below, Lehman is adjusting the earnings estimates for the S&P 500 in the wake of events on September 11th. See below. The 30 -year bond yield is 5.50%. The 10-year is trading at 4.63%. The 5-year is trading at 3.77%. Spot crude oil is trading at $22.38 p/b. Natural Gas - Henry Hub - is trading at $2.24 p/mcf IMPACT CALLS Portfolio Strategy Charles Reinhard Cutting Exp. EPS, Eqty Returns, & Valuation q The policy response to the savage attack on civilization continues to be vigorous. A sustained diplomatic and military campaign against terrorism is coming into place. Monetary policy has been aggressive, with more to come. And fiscal policy is swinging into gear. Still, the United States is likely to remain in recession for the remainder of 2001. We are thus cutting our 2001-2002 S&P 500 EPS forecast from $49.25 to $46.50 this year, and from $59.00 to $53.00 next year. In a riskier world, we are also assuming lower valuation for the stock market. Accordingly, we are cutting our forward one-year S&P 500 price target from 1375 to 1200; the Dow Jones Industrials equivalent is 10,000. q Our Economics team is now looking for a shallow U.S. recession for the second half of this year, with GDP down roughly 1.5% in the third and fourth quarters. The jobless rate will rise to 5.3%, we think, as CPI drops to 1.9%. With the Fed Funds rate at 3%, expect the Federal Reserve to cut rates to 2.5% at the next FOMC on October 2. With core CPI at 2.7%, that would take the real Fed Funds rate below zero. Historically, the real Fed Funds rate has always gone to at least zero during profit recessions of the current magnitude. Whether the Fed will need to do more after October 2 remains to be seen. That the central bank will do whatever it needs to do is beyond question. With another drop in short-term interest rates, the yield curve should steepen further. Charter Communications Lara Warner Downgrade Rating to "3" from "1" 3 - Market Perform / 12.75 (USD) q We are downgrading Charter to 3 Market Perform, from 1 Strong Buy, and lowering our 12-month price target to $17, from $33 previously. q The company announced yesterday that Jerry Kent, its CEO, would resign effective September 28, 2001. q We believe that this event, as well as the potential for additional senior management departures, increases execution risk significantly for Charter. q We have revised our estimates downward to reflect less robust new services and advertising growth. Bank of New York Henry Chip Dickson Third Quarter Preview 1 - Strong Buy / 33.70 (USD) q We believe BK should be one of the companies most leveraged and best positioned to an improvement in the economic and market environments because we believe that improvement will be preceded by stronger market volumes and greater capital market activity. We continue to rate BK 1 - Strong Buy, with a $50 price target. q Because of the World Trade Center tragedy and the weak market conditions that existed through the end of August, we have reduced our 3Q01 EPS estimate to $0.50, which is below consensus expectations. We expect consensus expectations to be revised down over the next several weeks. Safeway Inc Meredith Adler Going into 3Q w/some uncertainty 1 - Strong Buy / 40.65 (USD) q Safeway's sales growth is the greatest area of focus, given the sluggish performance in 2Q01. Although we expect SWY to beat its 1.0% guidance, it probably will not be by much. q Comments by Kroger last week indicate a "hot" competitive environment in some markets, with Albertson's attempting to improve its pricing image with consumers. We expect both KR and SWY to take steps to protect market share. q The weak economy is not likely to impact Safeway's sales much, given the minimal exposure to discretionary items. q Safeway is trading at a 2002 P/E of 13.5x, well below historical levels. The stock has not traded at this low a P/E since a brief period in 1994. We view Safeway as a vastly better company than it was at that time. INITIATING COVERAGE Tekelec Steven D. Levy It's Time to Take a Look at Tekelec 1- Strong Buy / ($14.37) q We have been culling through our comprehensive list of publicly traded communications technology companies looking for attractive investment opportunities. q Tekelec is the leading provider of critical network intelligence systems used by most incumbent carriers around the globe, and in our research on Tekelec we have found that the company is likely to be one of the first to rebound when overall telecommunications spending picks up again. q We are initiating coverage of TKLC shares with a 1-Strong Buy rating and a one year price target of $20. Bed Bath & Beyond Alan M. Rifkin Stellar 2Q EPS - Still Delivering The Results 2 - Buy / $22.96 q BBBY posted 2Q EPS of $0.18 versus $0.15 last year---a 21% gain, and in line with our expectation and original company guidance. We view the gain as impressive considering the broad-based slowdown that has impacted most retailers. q The company posted a strong 21.1% increase in total sales to $713.6MM, driven by an impressive 4.8% comp gain, which was ahead our 3% estimate, as BBBY continues to post the strongest sales gains within our Specialty Hardlines coverage. q Management continues to endorse 3Q and 2001 EPS estimates of $0.18 and $0.72 respectively. We maintain our Street high 2001 estimate of $0.74. q BBBY remains one of our top picks, with a history of posting strong sales and EPS gains irrespective of a difficult macro economic environment. q Valuation. BBBY shares trade at 31.0x and 25.2x our 2001 and 2002 estimates of $0.74 and $0.91. Integrated Oil Paul Cheng Weekly U.S. Crude Oil & Refined Products Inventory Summary / q Despite the current cloudy outlook, we expect U.S. refined product demand to hold up reasonably well, as some of the lost jet fuel consumption should be replaced by increased gasoline and diesel demand as consumers opt for alternative means of transportation. We remain optimistic regarding the domestic refining market's medium-term outlook, and maintain our overweight position on the independent refiner stocks. q On the surface, last night's inventory report from the American Petroleum Institute (API) appears extremely bearish given the outsize stock build in the gasoline market. At a closer look, the data tells a somewhat different story given that the huge inventory increase was driven largely by very high import levels, specifically, 1 million barrels per day (mmbls/d) over the past week, which in our opinion is unsustainable. In addition, we expect next week's implied gasoline demand to trend higher from this week's dismal level of approximately 8.4 mmbls/d as consumers gradually return to the road. Thus, while the increase in gasoline inventories was substantially larger than expected, we think it is premature to draw any negative conclusion. In contrast to the gasoline market, middle distillate stocks experienced an unexpected decline due to apparently strong demand, which is an encouraging sign although we admit it is still too early to know for sure. Looking ahead, despite the current cloudy outlook, we expect U.S. refined product demand to hold up reasonably well, as some of the lost jet fuel consumption should be replaced by increased gasoline and diesel demand as consumers opt for alternative means of transportation. Bowater Inc Peter Ruschmeier Modest 3Q Shortfall not a Surprise 2 - Buy / (USD) q Despite a modest 3Q EPS shortfall, we find shares of BOW as increasingly attractive and recommend adding to positions on any pullback. q BOW expects to report a 3Q loss of $0.22 to $0.32 per share which is below the consensus view but in line with our expectations. q BOW now expects to take 120,000 tonnes of newsprint downtime in both 3Q and 4Q which is greater than their previous guidance, but not surprising given recent trends. q The risk to our 2002 estimate of $2.75 per share remains on the downside, but we continue to believe Bowater has peak earnings power of more than $10.00 per share. FirstMerit Corp Brock Vandervliet Compelling Valuation But Our Caution Remains 3 - Market Perform / ($22.00) q FMER notched up a better than expected second quarter performance and we have a high level of confidence in our full year estimates. We remain concerned about the manufactured housing exposure. FMER 3 - Market Perform. q Although we don't expect a large margin boost we would not be surprised by a modest improvement on the order of 10 bps which would be FMER's 4th consecutive qtr of margin gains. Organic loan growth should run in the high single digit range, which may be blunted by residential loan sales like last quarter. q Fee and expense growth which were both solid in Q2 should be marked by similar performance with low double digit fee growth offset by mid-single digit expense growth, largely linked to incentive fees. q Our perennial concern, particularly in this environment remains credit quality. NPA's will likely climb higher putting them above 70 bps with 50-60 bps of NCO's. Due to the manufactured housing operation, which is roughly $800mm on balance sheet or just over 10% of total loans, we believe both NPA's and NCO's will continue to run above the mid-cap average. Marshall & Ilsley Jason Goldberg 3Q01 Preview: M&M - Margin & Metavante 2 - Buy / 50.99 (USD) q We continue to rate MI 2-Buy with a $62 price target. q We expect MI to report operating EPS of at least $0.92 on October 10. Reported results will likely contain several acquisition related charges. q Third quarter results will contain two months worth of MI's purchase acquisition of National City Bancorp. q We expect the quarter to evidence continued net interest margin expansion and further improvement at Metavante. We believe 1Q01 marked the bottom for revenues at MVNT. q Sluggish loan growth could restrain further improvement. q Asset quality metrics should hang in there, although an uptick in NPAs is expected. Wilmington Trust Brock Vandervliet Maintaining Est.But Consensus Looks High 3 - Market Perform / $51.30 (USD) q We remain confident in our WL estimates as they are already conservative and in the case of 2002, our estimate is nearly $0.10 below Street consensus. However, the stock could come under pressure as others trim their guidance for '02. q We carry a $0.96 Q3 EPS estimate for Wilmington Trust (WL)-in line with consensus. WL is expected to release October 18th. At this point we are maintaining our full year estimates of $3.79 and $4.10 which implies 8% EPS growth. q In spread income we believe there will be some softness in loan demand largely tied to C&I in the metro-Philadelphia market. We believe the margin will decline somewhat to around 4.95% or perhaps slightly lower. Countrywide Credit Makiko Coakley 2Q Met Raised Est. Raising Our 3Q Est. 2 - Buy / 40.21 (USD) q CCR reported its fiscal 2Q (ending on 8/31) EPS of $1.20, meeting our upwardly revised estimate and beating the consensus by a penny. Its 2Q EPS was up 56% YoY and 20% QoQ. Its 3Q earnings should also be strong. We believe CCR should work as a safe stock, and thus, it should do well over the short-term especially if the market remains volatile and depressed. q Most line items in 2Q came in as expected. q CCR gave guidance for its fiscal 3Q EPS -- $1.20 to $1.25 vs. the consensus of $1.12. This is based on mortgage origination volume for the company of $30-$33 bil. in 3Q vs. $33.5 bil. in 2Q and $30.6 bil in 1Q. We are being conservative and raising our number to $1.20 from $1.09. Rockwell Automation Robert T. Cornell Rockwell's '01 and '02 Outlook Revised 2 - Buy / (ROK-$13.67) q Stock could reflect EPS uncertainty for a while q Rockwell guides 4Q EPS in a $0.05-$0.07 range, and 2001 EPS to $0.91-$0.93 due to downturn in global industrial automation market. q Management now expects sales in 4Q01 and 1Q02 to be sequentially off 4% from previous quarter. 1Q02 EPS to gain modestly over 4Q01. q Accelerated restructuring could mean additional net cost savings of approximately $50 million in 2002. q We are moving our 2001 EPS estimate to 0.93 from $0.95 and 2002 EPS estimate to $0.75 from $1.10. RadioShack Corp Alan Rifkin RSH/Blockbuster Tour In Vegas - New Date 1 - Strong Buy / 22.24 (USD) q Lehman Brothers-Sponsored Trip to Blockbuster Store in Las Vegas Featuring Newly added RadioShack Store-Within-a-Store Concept. q We are pleased to announce that we have rescheduled the Store Tour for Monday, November 19, 2001, at 11 AM (preceding Lowe's Analyst Meeting), Lehman Brothers will sponsor a trip for institutional investors to visit the newly opened "RadioShack Cool Things" store-within-a-store inside a Blockbuster store. Time Warner Telecom Daniel Zito Selloff Overdone 1 - Strong Buy / 9.15 (USD) q Shares at distressed levels, despite funding cushion, interest coverage and increasingly success based cap ex. Reiterate 1- Strong Buy. q Pre-announced 3Q01 revenue of $170-$175M below our street low $184M estimate primarily driven by timing of intercarrier compensation collections. q Our prior $$38M EBITDA estimate is within the company's pre-released $36-$39M range, demonstrating the company's cash management skills. q Lowering our 4Q01 revenue projection 3% to $180M and our 2002 outlook 1% to $801M. Our EBITDA projections remain unchanged. q Share currently trade at 11.7x 2001 EBITDA and a favorable 0.39x on a growth adjusted basis. David C. Morris Sr. VP Lehman Brothers 713-652-7112/800-227-4537 dcmorris@lehman.com ------------------------------------------------------------------------------ This message is intended only for the personal and confidential use of the designated recipient(s) named above. If you are not the intended recipient of this message you are hereby notified that any review, dissemination, distribution or copying of this message is strictly prohibited. This communication is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product, an official confirmation of any transaction, or as an official statement of Lehman Brothers. Email transmission cannot be guaranteed to be secure or error-free. Therefore, we do not represent that this information is complete or accurate and it should not be relied upon as such. All information is subject to change without notice.
|