Enron Mail

From:david.morris@lehman.com
To:larimore@enron.com, jordan.larimore@lehman.com
Subject:The Morning Market Call - Friday August 3rd, 2001.
Cc:
Bcc:
Date:Fri, 3 Aug 2001 12:04:33 -0700 (PDT)

<<MF August 3rd 2001.pdf<<

Good Friday Morning - Comments From The Local Guys!

The unemployment numbers this morning were overall mixed. Unemployment
stayed at a solid 4.5% and non-farm payrolls fell by an as expected 42,000
in July. However, payrolls posted gains in revisions to the last two months
of a net 54,000. The 3-month moving average is now at a minus 31,000.
Preliminary GDP estimates had previously suggested anemic second quarter
growth of only 0.7%. However, subsequent data on inventories and
construction indicate a possible 0.9 percentage point downward revision in
GDP, raising the chances for the first negative quarter since the 1990
recession. Lehman Brothers' economists continue to believe the Federal
Reserve will be aggressive in responding to any further economic weakness
and they expect 25 basis point rate cuts at each of the next two FOMC
meetings. In the coming weeks, we will be keeping close tabs on every
economic indicator of consumer spending for any deterioration.


Natural Gas now below $3.00 p/mcf.
The 30-year US T-Bond yield is 5.5%.
The 10-year is trading at 5.15%.
The 5-year is trading at 4.65%.
Spot crude oil is trading at $27.48 p/b.
Natural Gas - Henry Hub - is trading at $2.97 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

Waste Management(WMI) 1 - Strong Buy T. Ford, .212.526.9127
WMI 2Q Preview: Tale of Two Stories (A)
OLD NEW STREET P/E
Price: $31.17 EPS 2000 N/A $1.20 N/A N/A
52 Wk Ra: $32 - 17 EPS 2001 $1.36E $1.36E $1.36E 22.9
Mkt Cap: $19.6B EPS 2002 $1.70E $1.70E $1.67E 18.3
FY: 12/31 Price Target $36 $36
Rank 1 1
*WMI reports 2Q EPS on 8-8 before the opening. No material changes expected
with turnaround story intact, but likely fine-tuning on
economic story.
*Economic story highlighted in the meager volume growth expected, commodity
price weakness and down margin performance
versus pro forma.
*Expect turnaround outlook to remain in tact, with sequential core pricing
improvement and some slight evidence of improved cost
control.
*Waste stocks that have already reported exhibited some stock price weakness
on EPS miss and revision concerns, before rebounding.
WMI could provide sidelined investors with similar opportunity.

FOCUS STOCKS

Concord EFS(CEFT) 1 - Strong Buy S. Smith, .212.526.5736
Reiterate 1-Stong Buy on Online Debit Card Leader (C)
OLD NEW STREET P/E
Price: $54.79 EPS 2000 N/A $0.88 N/A N/A
52 Wk Ra: $62 - 26 EPS 2001 $1.17E $1.17E $1.17E 46.8
Mkt Cap: $13.9B EPS 2002 $1.55E $1.55E $1.53E 35.3
FY: 12/31 Price Target $70 $70
Rank 1 1
*Yesterday shares of Concord EFS were under pressure, closing down $2.18 or
3.8% - above the lows of the day.
*We believe that the reason was likely that positive comments in the
technology sector caused rotation out of the defensive Payments
Processing sector.
*We continue to believe that despite the strong performance of Concord EFS
thus far in 2001 (+24.7%) the shares have more upside
potential due to the company's high degree of leverage to debit card
processing - online debit processing in particular.
*Over the remainder of the year, we expect Concord EFS to announce the
addition of new bank partners to the Star network and new
retailers as well, driving EPS growth of 30+%.
*We believe that Concord's relatively predictable earnings growth deserve
continued investor attention and we would use yesterday's
weakness as a buying opportunity.

COMPANY/INDUSTRY UPDATES

Oil & Gas T. Driscoll, .212.526.3557
Exploration & Production: Gas Supply is Rising -- Still Bearish
*Gas prod'n in Canada is sharply higher and US prod'n has turned upward. A
growing storage overhang and weak gas demand makes
us cautious on E&P shares. This supply overhang combined with weak demand
could lead to a prolonged period of weak nat. gas
prices and falling share prices.
*Q2 wellhead (i.e. not dry gas) prod'n for a group of 37 producers (that
account for 60% of the total) is up 1.7% from Q4 levels. If
second half prod'n rises at the same rate, year 2001 exit rates will be up
3-4%.
*Canadian prod'n was up an estimated 8% in June from a yr. ago. Recent
Ladyfern discovery has contributed a little over one-third of
this increase -- and Ladyfern volumes could double from here.
*Year end (i.e. Dec. 31) storage levels are likely to by 700 bcf above
prior-year levels.

Gilead Sciences(GILD) 1 - Strong Buy J. Dougherty, .212.526.2172
GILD: FDA Risk Adequately Discounted (C)
OLD NEW STREET P/E
Price: $50.9 EPS 2000 N/A -$0.48 N/A N/A
52 Wk Ra: $62 - 25 EPS 2001 -$1.33E -$1.33E -$1.25E N/A
Mkt Cap: $4.8B EPS 2002 $0.16E $0.16E -$0.12E 318.1
FY: 12/31 Price Target $65 $65
Rank 1 1
*GILD shares have been under pressure in recent days from concerns about
regulatory risk to their lead HIV drug tenofovir (now
Viread). We believe that the risk to Viread at the FDA is now discounted in
the share price, and further expect excellent newsflow out
of Gilead over the next several quarters.
*Gilead's shares have suffered in sympathy with each company that has faced
a setback at the FDA over recent weeks. While we
remain cautious about approval timelines for any new drugs at the FDA, we
believe that the risk of a prolonged delay is lower for
Viread than for most other drugs.
*The company remains upbeat about the approval process in our recent
conversations.
*The remaining 1000 patients from the old Preveon expanded access program
have just switched to Viread, showing that the FDA
recognizes the risk/reward of Viread as superior to its older cousin.

Protein Design Labs(PDLI) 2 - Buy M. Wood, .212.526.4035
PDL reports 2Q EPS (C)
OLD NEW STREET P/E
Price: $54.96 EPS 2000 N/A $0.01 N/A N/A
52 Wk Ra: $146 - 33 EPS 2001 $0.11E $0.05E $0.06E 1099.2
Mkt Cap: $2.6B EPS 2002 $0.14E $0.13E $0.18E 422.8
FY: 12/31 Price Target $58 $58
Rank 2 2
*PDLI reported a net income of $3.1 million or $0.07 per diluted share
versus Street and Lehman estimates of $0.06 and $0.09 per
share, respectively.
*Operating revenues for the quarter were $12.7 million, compared with our
$14.0 million forecast. The shortfall can be accounted for
by uneven timing in payments from partners and licensees.
*Given that fees and milestone payments from humanization agreements are
difficult to predict, we are taking operating revenues this
year down from $48.0 million to $43.9 million. We are also removing Xolair
royalties from our model in 2002.
*The net impact of these changes on EPS is a decrease from $0.11 to $0.05 in
2001, and from $0.14 to $0.13 in 2002.

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.


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- MF August 3rd 2001.pdf