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Enron Mail |
<<MF September 5th 2001.pdf<<
Good Wednesday Morning - Comments From The Local Guys! Abbreviated Call. The 30 -year bond yield is 5.47%. The 10-year is trading at 4.96%. The 5-year is trading at 4.50%. Spot crude oil is trading at $27.03 p/b. Natural Gas - Henry Hub - is trading at $2.41 p/mcf. AD Time: New Federal Insider-Trading Rule (Rule 10b5-1) has been adopted by the SEC under the Securities Exchange Act of 1934. This rule greatly enhances an insider's/employee's ability to trade his/her corporate shares during blackout periods. Previously, without the protection of this new SEC rule, employees and insiders could safely trade only outside of designated blackout windows. Under this new rule, insiders/employees may have the ability to purchase and sell their corporate shares even during blackout periods if a written plan was established and in force when the insider/employee was not in possession of material, non-public information. The new rule contains other restrictions and should be reviewed carefully. Lehman Brothers has established a turn-key plan that take into account the regulatory procedures for establishing such a plan. Please email us or call us for more information. Lehman's Research IMPACT CALLS Citrix Systems(CTXS) 1 - Strong Buy M. Stanek, .650.289.6027 Moment of Truth - What Will MSFT Build Into Their Server? (C) OLD NEW STREET P/E Price: $31.43 EPS 2000 N/A $0.61 N/A N/A 52 Wk Ra: $37 - 16 EPS 2001 $0.75E $0.75E $0.75E 41.9 Mkt Cap: $5.8B EPS 2002 N/A N/A $0.93E N/A FY: 12/31 Price Target $40 $40 Rank 1 1 *We have run beta tests on Windows 2002 Server and have verified many of the additional features of Windows Terminal Services (WTS) that will be built into it. *Our research indicates that while there have been improvements made to the base WTS architecture, we see no evidence of Microsoft encroaching on any of the key application management features found in either Citrix MetaFrame 1.8 or MetaFrame XP. *This is very good news for Citrix, as the multiple on the shares have been unduly suppressed by the specter of MSFTs proposed server road map. *Windows 2002 Server (Whistler) is due for launch in March 2002, and the next release of the Server (Blackcomb) wont occur until late 2003-2004. *We believe this new news should be transferred into a higher multiple for the shares immediately. We are comfortable with 40X on a potential $1.00 per share (we are currently at $0.92) for FY02. Advanced Energy(AEIS) 3 - Market Perform T. Berg, .212.526.5276 Lowering Rating & Earnings Estimates (C) OLD NEW STREET P/E Price: $22.83 EPS 2000 N/A $1.88 N/A N/A 52 Wk Ra: $58 - 15 EPS 2001 -$0.48E -$0.52E -$0.40E N/A Mkt Cap: $723.7MM EPS 2002 $0.10E -$0.25E $0.00E N/A FY: 12/31 Price Target $38 $20 Rank 2 3 *We remain cautious on AE's shares near-term and are lowering our rating to 3 Market Perform from 2 Buy as near-term fundamentals will likely remain weak due to continued order cancellations & pushouts. We also believe excess channel component inventory will weigh negatively on AE near-term. Bottom line is that we see more near-term downside to AE's share price than upside. *Our rating downgrade is driven by: 1) weak end mkt demand and excess OEM component inventory and 2) no earnings visibility. We believe that 4Q01 and 2002 street earnings ests. are too high and we expect AE to lower near-term expectations when it reports 3Q earnings on October 11. *AE's customers do not have any material degree of confidence that their orders have bottomed. This was evidenced by NVLS' conf call last Thur when it lowered expectations for 3Q01 orders and set the stage for lower 4Q01 expectations. *As a result we are lowering our '01 & '02 EBG ests. We are also reducing our price target to $20. National Semiconductor(NSM) 3 - Market Perform S. Dickson, .415.274.5229 NSM On track for Aug Qtr, but Nov still a ? OLD NEW STREET P/E Price: $33.05 EPS 2001 N/A $1.54 N/A N/A 52 Wk Ra: $48 - 17 EPS 2002 -$0.63E -$0.63E -$0.62E N/A Mkt Cap: $5.8B EPS 2003 N/A N/A $0.58E N/A FY: 5/31 Price Target N/A N/A Rank 3 3 *We expect NSM to report Aug qtr results this Thursday in-line with the cos guidance of revs down 15-20% q/q. We believe the co. is working down inventory and is benefiting from an uptick in wireless (25% sales) and PCs (15% sales). However, we remain cautious on the stock given the Nov qtr outlook may be weaker than expected. *We believe early signs of a sustained recovery in wireless are pre-mature given comments by Ericsson that a broad recovery is still 1-2 qtrs away. Also, we believe those investors looking for strong back-to-school selling season (PCs) will likely be disappointed. *With NSM up 21% since Jul 2nd, we believe it fully reflects the firming of demand in wireless and PCs, but does not discount a potentially disappointing Nov qtr. As a result, we think the stock could trade down into the mid-$20s assuming the company needs to lower street ests for the Nov qtr, which we are modeling at +5% q/q rev growth. We believe guidance could call for revs flat to slightly up q/q. Diebold Inc(DBD) 3 - Market Perform D. Zwyer, .212.526.2008 Stock At Target: Lowering Rating on Valuation OLD NEW STREET P/E Price: $40.08 EPS 2000 N/A $1.92 N/A N/A 52 Wk Ra: $40 - 23 EPS 2001 $1.95E $1.95E $1.97E 20.6 Mkt Cap: $2.9B EPS 2002 $2.10E $2.10E $2.26E 19.1 FY: 12/31 Price Target $40 $40 Rank 1 3 *We are lowering our rating on Diebold's stock to 3 Market Perform from 1 Strong Buy on valuation. The stock has increased 53% since we recommended it in March '00 vs a 24% drop in the S&P 500, and is at our $40 price target. At 19x est 02 EPS of $2.10 we believe the stock is fully valued. *There has been a lot of good news surrounding Diebold's stock in recent months, including ATM (automated teller machine) European market penetration, cost cutting initiatives, the exit of competitor Mosler from the bank security products business, expansion of its voting machine business, and progress in supplying components for self-service supermarket checkout. Also, new management (in the past two years) is focused on international growth and improving margins. Diebold's strong debt-free (net) balance sheet will enable it to continue to make strategic acquisitions. While these factors point to a positive outlook for Diebold, we believe the stock price fully reflects the potential. Diebold's stock has traded primarily in a range of 12-20x earnings over the past decade and is currently near the high end of that range. Hardlines A. Rifkin, .212.526.1922 AUGUST SAME-STORE SALES PREVIEW *Retailers report August comps on Thursday, September 6. *Back-to-School essentially in-line with reduced expectations. Maintain selectivity. Many retailers have seen little benfit from rebate checks. Our Q4 study shows retailers underperform in Q4. *Home Furnishing- Back-to-School slightly below plan for some retailers - consumers gravitate towards promotionally-priced merchandise. *Home Improvement- 2Q comps represent the first qtr of sequential improvement. Look for easier comps/lumber comparisons to boost comps in 2H01. Positive implications of Fed's 300 bp reduction in rates not likely to help fundamentals until 1H02. *Consumer Electronics- Sales only marginally aided by benefits of rebate checks. Look for new product introductions like Xbox and Gamecube to help boost comps in 4Q. Devon Energy(DVN) 2 - Buy T. Driscoll, .212.526.3557 Lowering Devon's Target Price OLD NEW STREET P/E Price: $46.27 EPS 2000 N/A $5.49 N/A N/A 52 Wk Ra: $67 - 46 EPS 2001 $5.50E $5.50E $5.83E 8.4 Mkt Cap: $4.0B EPS 2002 $2.70E $2.70E $3.98E 17.1 FY: 12/31 Price Target $69 $53 Rank 2 2 *Devon announced yesterday that it would acquire Anderson Expl for US$4.6 bn. Acq'n price is equivalent to a debt-adjusted cash flow multiple of 8.0-8.5 times -- a sharp premium to Devon's trading multiple of about 5 times. We are lowering our target price from $69 to $53 to reflect the premium paid for the acq'n. Our revised target assumes that DVN's multiple will expand from 5.0 times PICF for DVN standalone to about 6.5 times. However the premium price paid has led us to lower our target price -- maintaining buy rating. *Acquisition will expand reserves by 35 percent -- but firm value will rise by 44 percent. *If investors were to value the acquired cash flows at the same multiple that Devon trades at, the shares would need to fall by more than $10 per share from the $46 pre-announcement share price. *We will review our earnings & cash flow estimates once we receive guidance from the company. INITIATING COVERAGE Celgene Corp(CELG) 2 - Buy M. Wood, .212.526.4035 Initiating with 2 - Buy and 12 month price target of $38 (C) OLD NEW STREET P/E Price: $27.81 EPS 2000 N/A -$0.01 N/A N/A 52 Wk Ra: $76 - 14 EPS 2001 N/A $0.09E N/A 309.0 Mkt Cap: $2.1B EPS 2002 N/A $0.31E N/A 89.7 FY: 12/31 Price Target N/A $38 Rank N 2 *Celgene has established a valuable franchise in oncology with lead product Thalomid, which we think can achieve peak sales of $230 million. *The IMiDs and SelCID programs have been devised to build on the success of Thalomid and potentially yield new drugs for inflammatory diseases and cancers. The company also has a drug discovery platform in gene regulation. *We expect Ritadex for attention deficit disorder (licensed to Novartis) to be a contributor to revenues from 2002 onwards. The product's success will ultimately depend on additional clinical data as well as development of new formulations. *We have valued Celgene by applying a 65 multiple to our 2005 EPS (fully taxed) of $1.30. Discounting this at 30% per year over three years gives us a 12 month price target of $38. FOCUS STOCKS Harley-Davidson(HDI) 1 - Strong Buy F. Kantor, .212.526.5562 We Hit The Road Again; This Time to Visit HDI OLD NEW STREET P/E Price: $48.32 EPS 2000 N/A $1.13 N/A N/A 52 Wk Ra: $54 - 34 EPS 2001 $1.38E $1.38E $1.38E 35.0 Mkt Cap: $14.8B EPS 2002 $1.60E $1.60E $1.60E 30.2 FY: 12/31 Price Target $60 $60 Rank 1 1 *We must reiterate our enthusiasm for HDI following our tour of the co's York, PA plant yesterday. We are particularly excited about the prospects for the plant expansion as we firmly believe the new facility could spur the gross margin expansion we have been discussing for some time now. Despite concerns overhanging the rest of the consumer sector, we continue to believe in the HDI story and reiterate our 1-Strong Buy rating. *We have toured the York plant before and found that little has changed. As always, the facility was humming with production. But, it also appeared to be bursting at the seams in terms of capacity. *Managers we spoke with conveyed to us a high morale about current business. But, even more noticeable was an excitement about the plant expansion which is scheduled to open in 2003. *While HDI continuously strives to improve margins, we believe sig. growth could come from this new plant. Based on prior expansions, HDI's gross margins could benefit over 100 basis points. COMPANY/INDUSTRY UPDATES Providian Fin'l Corp(PVN) 2 - Buy B. Harting, .212.526.3007 The slide continues..... (A) OLD NEW STREET P/E Price: $39.06 EPS 2000 N/A $2.73 N/A N/A 52 Wk Ra: $67 - 36 EPS 2001 $3.25E $3.20E $3.28E 12.2 Mkt Cap: $11.6B EPS 2002 $3.91E $3.49E $3.99E 11.2 FY: 12/31 Price Target $58 $40 Rank 2 2 *We are lowering our FY01 and FY02 EPS estimates to reflect the revised earnings guidance for FY01 and lower long term growth rate going forward. Despite the fact that the shares were down 20%, we do not view this weakness as a buying opportunity and continue to maintain our cautious stance on the name given the uncertainty of earnings going forward. *We are lowering our FY01 earnings estimate to $3.20 from $3.25 and our FY02 estimate to $3.49 from $3.91. We are lowering our price target to $40, which represents 11.5x our FY02 estimate. *The company provided guidance for net credit loss performance in 4Q01 and FY02. The company noted that it expects the net credit loss rate to be in the 10.45% -10.75% range for 4Q01 with credit loss rates running at or above that range in FY02. *We believe the biggest reason for the change in guidance is the lack of success in generating profitable loan growth in the Prime & Super Prime segments and higher than expected credit costs. Albertson's, Inc(ABS) 3 - Market Perform M. Adler, .212.526.7146 Reports 2Q01 EPS of $0.45, beating our estimate by $0.02 OLD NEW STREET P/E Price: $34.70 EPS 2001 N/A $2.08 N/A N/A 52 Wk Ra: $37 - 20 EPS 2002 $1.81E $1.93E $1.85E 18.0 Mkt Cap: $14.2B EPS 2003 N/A N/A $2.13E N/A FY: 1/31 Price Target N/A N/A Rank 3 3 *The tone of the ABS analyst meeting was upbeat, although the company provided very little new information to justify its currently high valuation (2001 P/E of 18.0). ABS is trading higher than both Safeway (2001 P/E of 17.3x) and Kroger (2001 P/E of 17.9x), both of which have far stronger and clearer earnings prospects, as well as better long-term competitive positioning. We are therefore maintaining our 3-Market Perform rating. *ABS reported 2Q01 EPS of $0.45, $0.02 ahead of our estimates and $0.01 ahead of consensus. Sales were in line with our estimates, but the operating margin deteriorated by only 42 bp versus the 58 bp we had forecast. *We have raised our 3Q01 estimate from $0.37 to $0.44, and our FY02 estimates from $1.81 to $1.93. For the full year, we are forecasting that sales grow 3.6% to $38.073 billion, while we now expect the operating margins to deteriorate 27 bp versus our previous estimate for a 54 bp deterioration. David C. Morris Sr. VP Lehman Brothers 713-652-7112/800-227-4537 dcmorris@lehman.com Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities. Key to Investment Rankings: This is a guide to expected total return (price performance plus dividend) relative to the total return of the stock's local market over the next 12 months. 1 = Strong Buy (expected to outperform the market by 15 or more percentage points); 2=Buy (expected to outperform the market by 5-15 percentage points); 3=Market Perform (expected to perform in line with the market, plus or minus 5 percentage points); 4=Market Underperform (expected to underperform the market by 5-15 percentage points); 5=Sell (expected to underperform the market by 15 or more percentage points). This document is for information purposes only. We do not represent that this information is complete or accurate. All opinions are subject to change. The securities mentioned may not be eligible for sale in some states or countries. This document has been prepared by Lehman Brothers Inc., Member SIPC, on behalf of Lehman Brothers International (Europe), which is regulated by the SFA. ?Lehman Brothers, Inc. ------------------------------------------------------------------------------ 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. - MF September 5th 2001.pdf
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