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Enron Mail |
<<MF June 18th 2001.pdf<<
Good Monday Morning - Comments From The Local Guys! On Friday, it was reported that Industrial Production fell by 0.8% in May, after falling a downward-revised 0.6% in April. Additionally, Capacity Utilization fell to 77.4%, its lowest point since August 1983. This data increases the odds of a 50 basis point interest rate cut from the Federal Reserve at the June 26/27 meeting. The 30-year US T-Bond yield is 5.68%. The 10-year note yield is 5.22%. The 5-year is trading at 4.67%. Spot crude oil is trading at $27.82 p/b. Natural Gas - Henry Hub - is trading at $4.08 p/mcf. AD Time: New Federal Insider-Trading Rule (Rule 10b5-1) have 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 Brothers' Research. INITIATING COVERAGE Neurocrine Biosciences(NBIX) 1 - Strong Buy M. Wood, .212.526.4035 Initiating Coverage with a Strong Buy (C) OLD NEW STREET P/E Price: $34.42 EPS 2000 N/A -$1.30 N/A N/A 52 Wk Ra: $46 - 14 EPS 2001 N/A -$1.73E N/A N/A Mkt Cap: $874.3MM EPS 2002 N/A -$1.24E N/A N/A FY: 12/31 Price Target N/A $60 Rank N 1 *We are initiating coverage of Neurocrine (NBIX) with a Strong Buy rating and a 12 month price target of $60. *Lead product NBI 34060 could take a meaningful portion of the insomnia market, currently worth an estimated $1.5 billion. We expect this product to enter Phase III later this year. *Neurocrine has a particularly strong pipeline for a company of its size. This includes CRF Antagonists for the treatment of anxiety, depression and IBD, as well as two cancer products. *Near term potential catalysts include announcement of further Phase II data on NBI-34060 (July) and two new corporate partnerships (2H-2001). *Our EPS forecasts in 2001-05 are $1.92 loss, $1.24 loss, $1.78 loss, $1.35 loss, $0.79 and $3.77. FOCUS STOCKS McDonald's Corp(MCD) 1 - Strong Buy M. Speiser, .212.526.3255 Disappointing Outlook - Interim Update Review OLD NEW STREET P/E Price: $28.67 EPS 2000 N/A $1.46 N/A N/A 52 Wk Ra: $35 - 25 EPS 2001 $1.38E $1.38E $1.49E 20.8 Mkt Cap: $38.0B EPS 2002 $1.53E $1.53E $1.67E 18.7 FY: 12/31 Price Target $38 $38 Rank 1 1 *The outlook is disappointing so the turnaround time is delayed. However, we lowered our EPS forecast primarily due to Cost issues & ForEx, not Sales & the worst appears to be over. Maintain 1-rating & $38 9-12 month p-target *Mgmt guided 2Q EPS to $0.34-$0.35, -10 to -13% vs. Street of $0.38. Full yr, All-in guidance now at $1.40 vs. our low-end view of $1.46; Constant $ '01 EPS guidance now flat, reduced from +6-10%, Forex '01 run-rate now -$0.06/shr. We cut our 1) 2Q EPS view to $0.34 2) '01 EPS view to $1.38 & 3) '02 forecast to 1.53, +11% *Silver linings; 1) 2Q Constant currency (K$) EPS s/b improved from 1Q & forward 2) K$ system sales +6% ytd & 3) Unit growth remains Unch. So 1Q EPS appears to be trough & issues are more cost related (beef, energy) & FX, not Sales *Maintain 1-rating & $38 9-12 mo target; target P/E now about a 10% premium to S&P, still within 5-yr ranges. 1Q the worst, visibility on '02 rebound & New mgmt to fuel P/E Fannie Mae(FNM) 1 - Strong Buy B. Harting, .212.526.3007 18% EPS Growth This Year; Trades at 14 Times '02 EPS (A) OLD NEW STREET P/E Price: $80.66 EPS 2000 N/A $4.28 N/A N/A 52 Wk Ra: $89 - 48 EPS 2001 $5.00E $5.05E $5.05E 16.0 Mkt Cap: $80.7B EPS 2002 $5.70E $5.75E $5.70E 14.0 FY: 12/31 Price Target $95 $95 Rank 1 1 *We reiterate our 1- Strong Buy rating on Fannie Mae and our price target of $95. FNM has delivered 14 years of consecutive double digit earnings growth, and our new EPS estimate represents 18% growth this year. And yet, the stock is trading at 14 times our 02 EPS. *Fannie Maes monthly number showed strong purchase commitment volume, an excellent net interest margin and very strong credit. We are raising our 01 and 02 EPS estimate by $0.05 each. *OFHEOs annual report was released on June 15, which concluded that FNM exceeded safety and soundness standards in every category examined. These categories included credit risk, market risk, operational risk and corporate governance. *We also reiterate our 1-Strong Buy rating and $75 price targets for Freddie Mac. FRE also passed OFHEOs annual examination, and we expect the company to deliver 20% EPS growth in 01. It is currently trading at 14 times our 02 EPS. QUALCOMM Inc(QCOM) 1 - Strong Buy T. Luke, .212.526.4993 Update: 3Q Appears On Track w/Modest Expectations (A,C) OLD NEW STREET P/E Price: $49.37 EPS 2000 N/A $1.05 N/A N/A 52 Wk Ra: $108 - 43 EPS 2001 $1.05E $1.05E $1.04E 47.0 Mkt Cap: $39.8B EPS 2002 $1.29E $1.29E $1.33E 38.3 FY: 9/30 Price Target $85 $85 Rank 1 1 *Following recent sector weakness across the wireless equip. group, we thought it timely to provide an update on trends at wireless innovator QUALCOMM. We maintain our 1 Strong Buy. *While market conditions remain subdued, we believe that demand remains in-line w/QCOM's modest earnings guidance, revised post 2Q01. We believe revs & EPS in 3Q of $627M & $0.21 remain achievable. 3Q chipsets likely to be approx. 14M in period, w/range of 70-80M units for CY01. *We consider subscriber growth trends in major CDMA markets in Japan, Korea & US are trending broadly in-line w/01 ests. *Catalysts for stock in 2H01 include 1x roll-outs, spin-off (expected Sept/Oct 01), licensing deals w/NOK, ALA & Siemens. Target $85. COMPANY/INDUSTRY UPDATES Exodus Communications(EXDS) 2 - Buy H. Blount, .212.526.9128 Meeting with Management (C) OLD NEW STREET P/E Price: $4.61 EPS 2000 N/A -$0.54 N/A N/A 52 Wk Ra: $69 - 4 EPS 2001 -$0.65E -$0.65E -$0.61E N/A Mkt Cap: $2.4B EPS 2002 -$0.19E -$0.28E -$0.16E N/A FY: 12/31 Price Target $15 $9 Rank 2 2 *We are maintaining our Buy rating but reducing our 2002 revenue forecast and price target. *EXDS management recognizes the challenges ahead and is making progress on multiple fronts. *We believe the 2Q conference call will be critical to reigniting equity interest in the company. *Churn peaked in March and has trended down sequentially, however, the macro environment remains challenging. Therefore, we are reducing our 2002 revenue forecast from $2.5B to $2.0B and our price target from $15 to $9. *EXDS has $1.1 billion in cash and $450 million in remaining bank lines available. We continue to believe the company will receive a waiver on its bank line covenants. *We believe the previously announced cost reductions and lower capex will allow the company to reach cash flow positive. However, the company must begin demonstrating progress in 2Q01. Carnival Corp(CCL) 3 - Market Perform F. Kantor, .212.526.5562 Expecting Downward Revisions for Remainder of the Year OLD NEW STREET P/E Price: $26.40 EPS 2000 N/A $1.64 N/A N/A 52 Wk Ra: $35 - 18 EPS 2001 $1.62E $1.62E $1.66E 16.3 Mkt Cap: $15.5B EPS 2002 $1.85E $1.85E $1.93E 14.3 FY: 11/30 Price Target N/A N/A Rank 3 3 *The current economic overhang coupled with an aggressive capacity build-out for at least the next 3 years leads us to maintain our cautious outlook on the industry as a whole. *CCL reports 2Q01 EPS on Thurs 6/21. Our EPS est of $0.30 vs $0.32 (in line with the street) assumes a net yield increase of 3%. Given anecdotes of pricing weakness in the Caribbean, Alaska and Europe, we believe that our net yield outlook is too high and thus our cruise revenue est of $1.08bn (vs $845.3MM) is at risk. CCL could meet our EPS est, though, given lwr op exp per PPCD, SG&A or interest expense. *While CCL's 10.5% retreat from its recent high of $30 seems to imply that a 2Q disappointment is factored into the stock, we maintain that further downward net yield revisions could cause the shares to trade closer to their July 2000 levels implying a stock price of $22. CVS Corp(CVS) 1 - Strong Buy M. Adler, .212.526.7146 Strong Overreaction = Buying Opportunity OLD NEW STREET P/E Price: $47.55 EPS 2000 N/A $1.80 N/A N/A 52 Wk Ra: $64 - 33 EPS 2001 $2.10E $2.10E $2.10E 22.6 Mkt Cap: $19.5B EPS 2002 $2.45E $2.45E $2.42E 19.4 FY: 12/31 Price Target $66 $66 Rank 1 1 *Friday, a sell-side competitor downgraded and lowered estimates on CVS based on a survey his team conducted. This survey was conducted to attempt to further explain the recent deceleration in pharmacy comps that began in March and concluded that shortage of pharmacy staff and the EPIC pharmacy system were to blame. *CVS countered these conclusions and stated the weaker flu and allergy seasons, the lack of blockbuster drugs introduced, and the loss of a managed care contract all contributed to decelerating pharmacy sales *While we acknowledge that CVS is experiencing a labor shortage in a number of its markets, we do not believe this is a new phenomenon. This is an industry-wide issue that all drug stores are and will continue to experience into the future. *The stock is down tremendously as a result of the downgrade. We believe this is an over reaction and view this as a buying opportunity. We reiterate our 1-Strong Buy and maintain our estimates of $0.52 for 2Q01 and $2.10 for FY01. 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 June 18th 2001.pdf
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