Enron Mail

To:larimore@enron.com, jordan.larimore@lehman.com
Subject:The Morning Market Call - Monday August 20th, 2001.
Date:Mon, 20 Aug 2001 11:42:39 -0700 (PDT)

<<MF August 20th 2001.pdf<<

Good Monday Morning - Comments From The Local Guys!

The focus of attention for the markets this week will be tomorrow's meeting
by the Federal Reserve. According to Lehman Brothers' economists, the
downward revision to second quarter GDP growth into negative territory will
be disturbing to the Fed, as will the sharp drop in the Philadelphia Fed
index in July and the continuing deterioration in stock prices. However, the
markets are seeing evidence that the inventory correction process is coming
to an end. Against this background, they expect the Fed to cut the funds
rate another 25 basis point, to 3.5%.

The 30 -year bond yield is 5.48%.
The 10-year is trading at 4.93%.
The 5-year is trading at 4.49%.
Spot crude oil is trading at $27.52 p/b.
Natural Gas - Henry Hub - is trading at $3.37 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


CIENA Corp(CIEN) 3 - Market Perform S. Levy, .212.526.2499
A Fall From Grace (C)
Price: $28.78 EPS 2000 N/A $0.33 N/A N/A
52 Wk Ra: $151 - 28 EPS 2001 $0.74E $0.61E $0.73E 47.2
Mkt Cap: $9.7B EPS 2002 $1.00E $0.50E $0.99E 57.6
FY: 10/31 Price Target $50 N/A
Rank 1 3
*We are now officially downgrading our rating on CIEN shares to 3-Market
Perform from 1-Strong Buy because even after a
precipitous decline in the share price we do not see the shares providing
any reasonable return for at least the next six months and
believe further downside is possible.
*Assuming CIENA's long-haul DWDM sales decline 20% YoY in FY02, we
anticipate FY02 total sales of $1.80 bil, up 12% YoY vs.
$2.44 bil and 40% YoY gr previously. This translates to CY01 and CY02 sales
of $1.66B and $1.935B (+16%) vs. $1.92B and
$2.65B (+38%) previously.
*We now est FY02 EPS falling to $0.50 from $0.61 in FY01 versus our previous
est of $0.74 and $1.00. This translates to new CY01
and CY02 EPS estimates of $0.52 and $0.59 (+13% YoY) vs $0.77 and $1.10
(+43% YoY) in our previous model.
*In our view, overall potential upside to our current sales forecasts is at
least equally matched by the overall potential downside from
current levels.


Specialty Chemicals T. Gerdeman, .312.609.4031
Which Chemical Co.'s Benefit From A Weak U.S. Dollar?
*Given the declining U.S. dollar vs. major foreign currencies, it is
worthwhile to review the geographical sales composition of our
U.S. specialty chemical co.'s. The U.S. dollar has been particularly weak
vis-a-vis the Euro, hence we place disproportionate
weighting on the European component of each respective co.'s sales. Select
co.'s hedge their currency exposure, others have dollar-denominated
int'l. sales, hence it is impossible for us to estimate the exact benefit
for a given co. Directionally, however, we clearly
can develop a sense for the biggest beneficiaries.
*Co.'s possessing the greatest % of sales from Europe, in descending order,
include: OMG, SIAL, CBM, and EC. A weaker dollar
could make them more cost-competitive, boosting sales and EPS.

Comverse Technology(CMVT) 1 - Strong Buy T. Luke, .212.526.4993
Expect Revised 2Q In-Line & 2H01 Guidance Maintained (C)
Price: $26.75 EPS 2000 N/A $1.47 N/A N/A
52 Wk Ra: $125 - 23 EPS 2001 $1.14E $1.14E $1.47A 23.5
Mkt Cap: $4.7B EPS 2002 $1.37E $1.37E $1.13E 19.5
FY: 1/31 Price Target $45 $45
Rank 1 1
*On Tues. 8/28, we expect enhanced services & messaging leader CMVT to
report 2Q results in-line w/revised expectations &
maintain 2H01 guidance. We reiterate our 1 Strong Buy rating.
*While macro env continues to remain challenging - believe carrier order
trends have broadly stabilized in weeks since pre-announcement
on 7/11. Look for 2Q revs/EPS of $325M & $0.28 in-line w/revised guidance.
*Believe 3Q (revs -5% QoQ)/ 4Q (revs+5% QoQ)guid. likely to be maintained.
3Q/4Q rev & EPS ests are $330M/$0.20 &
$340M/$0.23. 01 $1.4B/$1.14.
*Believe CMVT retains excellent LT positioning & strong prospects for
continued share gains at several large U.S. players including
Cingular & Verizon. Although in difficult macro env believe change out may
be gradual.
*Believe our 02 ests remain conservative and at 26 times 01 EPS and 22 times
02 EPS reiterate strong buy rating. Target $45.

Ericsson(ERICY) 3 - Market Perform T. Luke, .212.526.4993
Mgmt Changes & Analyst Mtg May Offer Trading Opp. (C)
Price: $5.24 EPS 2000 N/A $0.12 N/A N/A
52 Wk Ra: $21 - 4 EPS 2001 -$0.15E -$0.15E -$0.13E N/A
Mkt Cap: $41.2B EPS 2002 $0.10E $0.10E $0.12E 52.4
FY: 12/31 Price Target $8 $8
Rank 3 3
*On Friday, wireless infra. leader Ericsson announced key, new mgmt
appointments & unveiled further restructuring iniatives. On
back of this news & ahead of global anayst day in London on 9/4, believe
shares may trade favorably n-term. Longer-term rating
currently remains 3 Mkt Perform given challenging macro env. N-term target
*We highlight two key mgmt changes- highly respected U.S. Head Per-Arne
Sandstrom is moving to COO role to drive restructuring
initiatives. In addition, successful turnaround chief Einar Lindquist moves
to lead core mobile systems bus.
*Further streamlining of org. structure from 5 to 3 global units to help
reduce costs. Increased focus on large global customers
w/creation of 5 core units
*Analyst mtg in London on 9/4 may highlight strong LT positioning &further
rest. initiatives, focus on CF
*Expect weak 3Q01 & beyond n-term trading opp. current valuation may prove
attractive to patient investors.

UnionBanCal Corp(UB) 3 - Market Perform B. Vandervliet, .212.526.8893
Erring on the Side of Caution (A)
Price: $38.7 EPS 2000 N/A $2.54 N/A N/A
52 Wk Ra: $39 - 18 EPS 2001 $3.00E $3.00E $2.95E 12.9
Mkt Cap: $6.2B EPS 2002 $3.40E $3.40E $3.42E 11.4
FY: 12/31 Price Target $30 $36
Rank 3 3
*Although we see some positive signs in certain areas we remain particularly
concerned about the credit outlook. We believe our EPS
estimates may be high and plan to update them shortly. UB is rated 3 Market
*Following a meeting with the Chief Credit Officer, we remain cautious
regarding the near and intermediate term credit outlook at
*We believe there will be further credit issues tied to the $1.4B of
non-relationship syndicated exposure and $1.3B communications
and telecom portfolios.
*As most past credit problems were centered in the non-relationship
syndicated, not the broader corporate portfolio, we question
whether the reorientation toward greater consumer exposure, in large part on
a wholesale basis, will add value.
*Due to the market action in the stock and results of our DCF analysis, we
are refining our target price to $36 from $30.

Waste Management(WMI) 1 - Strong Buy T. Ford, .212.526.9127
On The Road with Waste Management (A)
Price: $29.89 EPS 2000 N/A $1.20 N/A N/A
52 Wk Ra: $32 - 17 EPS 2001 $1.33E $1.33E $1.34E 22.5
Mkt Cap: $19.2B EPS 2002 $1.70E $1.70E $1.69E 17.6
FY: 12/31 Price Target $36 $36
Rank 1 1
*We spent 2 days on the road with WMI senior management. The turnaround
appears to be progressing according to schedule with
management noting (1) comfort with near-term EPS expectations and (2) a
continued belief that WMI, over time, will be successful
in driving margins into line with that of its peers.
*Multiple cost reduction & price based initiatives appear to be on track to
drive the material step-up in margin & EPS expected in 2H
*Mgmt remains comfortable with its ability to drive margins & earnings
higher over the longer-term given numerous opportunities for
operational improvement & continued buy-in by the field regarding cost
reduction/productivity & price based initiatives.
*Mgmt confident in a 2H 01 settlement of the class action suit, but the
process is setting the pace.
*Retaining 2001 & 2002 EPS estimates of $1.33 a $1.70. Reiterate Strong Buy
& $36 year-end target.

Cardinal Health(CAH) 1 - Strong Buy L. Marsh, .212.526.5315
ENJOYING THE DRIVE: Perspectives from Analyst Meeting
Price: $73.57 EPS 2001 N/A $2.07 N/A N/A
52 Wk Ra: $77 - 51 EPS 2002 $2.60E $2.60E $2.59E 28.3
Mkt Cap: $30.7B EPS 2003 $3.12E $3.12E $3.11E 23.6
FY: 6/30 Price Target $83 $83
Rank 1 1
*We continue to recommend purchase of shares of Cardinal, after its
analyst/investor meeting held last Thursday, August 16, and
provide some observations & perspectives.
*Key observations - 1) company did a very good job of building a bottoms-up
model as to how it gets to its top-line (and operating
profit) guidance, by division, in our view. 2) Company's tax rate will
continue to be a positive lever to EPS this year, though an
additional 40-50 basis point reduction, and could also see some further
reduction in FY03.
*In addition, 3) company's CFFO guidance of $800-$900mm could once again
turn out to be nicely conservative, in our view. 4) leads
to company's view of EPS visibilty being "extremely high".
*We would also note, of keen importance, implementation of FAS142 provides
"new world" of acquistion flexibility for CAH, leading
to good possibility of action over next 1-5 months, in our view. Confirm $83
target for well-positioned co., rep. 29x our current C02
cash earnings of $2.85.

Jabil Circuit, Inc(JBL) 2 - Buy L. Miscioscia, .212.526.3472
Weak End Markets Take Their Toll Again
Price: $22.8 EPS 2000 N/A $0.80 N/A N/A
52 Wk Ra: $68 - 18 EPS 2001 $0.76E $0.76E $0.75E 30.0
Mkt Cap: $4.5B EPS 2002 $0.94E $0.72E $0.91E 31.7
FY: 8/31 Price Target $40 $30
Rank 2 2
*On Wednesday 8/15 of last week we commented on a mid day break-in that
recent checks indicated business at some of our EMS
providers could remain flattish for the remainder of this year, and into
next, and highlighted Jabil as one of these providers.
*After further review we are going to lower our FY02 estimates for Jabil due
to our checks and very slow end market demand. While
we believe Jabil is benefiting from some industry consolidation wins, and
the Marconi ramp, some business is moving away from the
company to lower cost suppliers.
*For FY02 our revenue est moves to $4.5B, up 3% y/y but down from our prior
$5B est, and for EPS to $0.72 vs our prior $0.94. Our
CY02 estimate goes to $0.82 down from $1.09. Our new price target is $30,
down from $40. We retain our 2-Buy rating.

Fleming Companies, Inc(FLM) 1 - Strong Buy M. Adler, .212.526.7146
An Extraordinary Buying Opportunity (A)
Price: $28.20 EPS 2000 N/A $1.56 N/A N/A
52 Wk Ra: $38 - 10 EPS 2001 $1.96E $1.96E $1.96E 14.4
Mkt Cap: $1.5B EPS 2002 $2.55E $2.55E $2.55E 11.1
FY: 12/31 Price Target $45 $45
Rank 1 1
*Fleming remains, in our opinion, an extremely well-run company with strong
growth prospects, and we believe last weeks drop in
price represents an extraordinary good buying opportunity. Fleming is
currently trading at a 2002 P/E of 11.1 x on our estimate of
$2.55, down from 14.4 x two weeks ago. We re-iterate our 1-Strong Buy
rating, and our $45 price target, and we are maintaining our
FY01 EPS estimates at $1.96 and our FY02 EPS at $2.55.
*On Friday, Fleming announced that it has reached an agreement to settle the
largest of its remaining old lawsuits. We see this as a
positive, and we think the market will agree, once it understands that the
details of the settlement.
*Recent conversations with FLM management indicate that most of the glitches
related to Kmart are being resolved smoothly and that
nothing unusual has occurred given the magnitude of the transition. We
continue to many growth opportunities with non-traditional
customers, and we expect the company to be more aggressive about going after
these opportunities now that Kmart is progressing

David C. Morris
Sr. VP Lehman Brothers

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
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 = Buy (expected to outperform the market
by 15 or more percentage points); 2=Outperform (expected to outperform
the market by 5-15 percentage points); 3=Neutral (expected to perform in
line with the market, plus or minus 5 percentage points); 4=Underperform
(expected to underperform the market by 5-15 percentage points); 5=Sell
(expected to underperform the market by 15 or more percentage points);
V=Venture (return over multiyear time frame consistent with venture capital;
should only be held in a well-diversified portfolio).
This document is for information purposes only. We do not represent that
this information is complete or accurate. All opinions are subject to
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.

- MF August 20th 2001.pdf