Enron Mail

To:larimore@enron.com, jordan.larimore@lehman.com
Subject:The Morning Market Call - Friday September 7th, 2001.
Date:Fri, 7 Sep 2001 11:48:02 -0700 (PDT)

<<MF September 7th 2001.pdf<<

Good Friday Afternoon - Comments From The Local

Today's employment number was not a good one - however, it should prompt the
Fed to be more aggressive. The unemployment rate was the worst part of the
report, jumping to 4.9%. The market had been looking for 4.7% unemployment.
The jump in the unemployment rate was bad, but we have to remember two
things. First, the unemployment rate is a lagging indicator of economic
conditions. Second, with revisions, the payroll number was only slightly
worse than consensus. That said, the drop in aggregate hours of -0.4% and
the confidence impact of the jump in the unemployment rate will likely
result in lower GDP growth in the 3rd and 4th quarters than we were
anticipating. Lehman Brothers' economists now look for third quarter GDP of
1.0% (previous. 2.0%) and fourth quarter growth of 2.0% (previous. 3.0%). In
addition they now expect the Federal Reserve to cut 50 basis points at the
October 2nd meeting and expect a further 25 bp cut at the November 6th
meeting. The unemployment rate is now at its highest level since September
1997. But remember: The unemployment rate is a lagging indicator of economic

The 30 -year bond yield is 5.38%.
The 10-year is trading at 4.79%.
The 5-year is trading at 4.28%.
Spot crude oil is trading at $27.92 p/b.
Natural Gas - Henry Hub - is trading at $2.48 p/mcf.

AD Time:

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Lehman's Research


AOL Time Warner(AOL) 2 - Buy H. Becker, .212.526.1764
AOL Update - Lowering 2002 Estimates (A)
Price: $35.09 EPS 2000 N/A $0.94 N/A N/A
52 Wk Ra: $62 - 31 EPS 2001 $1.23E $1.23E $1.28E 28.5
Mkt Cap: $161.6B EPS 2002 $1.43E $1.43E $1.60E 24.5
FY: 12/31 Price Target $75 $75
Rank 2 2
*In our view, AOL Time Warner remains THE premier integrated media company
with a uniquely valuable portfolio of assets. Its
core businesses offer investors superior earnings power and growth while its
new transformational initiatives should propel the
company's long-term growth rate to above industry norms. The stock remains
the most attractive long term holding in our universe.
*However, we continue to believe that near term performance of the stock
will be held back by the softness in the advertising market
and the resulting lack of earnings visibility. Current estimates are calling
for a significant acceleration in revenue growth (especially
advertising) in the second half of 2001.
*For 2002, we are officially lowering our estimates (which had not been
adjusted since early 2001) to more conservative levels. Our
revenue estimate is moving from $44.0 billion to $42.2 billion and EBITDA
from $13.2 billion to $12.4 billion.

AOL Time Warner(AOL) 2 - Buy H. Becker, .212.526.1764
Divisional Overview: Part 2 of Series -- HBO (A)
Price: $35.09 EPS 2000 N/A $0.94 N/A N/A
52 Wk Ra: $62 - 31 EPS 2001 $1.23E $1.23E $1.28E 28.5
Mkt Cap: $161.6B EPS 2002 $1.43E $1.43E $1.60E 24.5
FY: 12/31 Price Target $75 $75
Rank 2 2
*Generally credited with driving the early growth of the cable industry,
almost 30 years later, HBO continues to find new subscribers,
build viewership and increase cash flow at double-digit rates.
*As a premium service, HBO is not at the mercy of the ups and downs of the
advertising cycle, but rather enjoys an annuity-like
stream of (monthly)subscription revenues, providing a stabilizing influence
to the financial performance of the Networks group as a
*HBO is expected to generate significantly above trend cash flow results
this year due to fundamental strength in the business as well
as one-time benefits from cost-cutting and merger synergies.
*HBO enjoys tremendous operating leverage--margins are continually expanding
because of the per subscriber leverage on costs.
*Quality original programming, an unparalleled movie line-up and
multiplexing are the cornerstones of HBO's growth.

AOL Time Warner(AOL) 2 - Buy H. Becker, .212.526.1764
Divisional Overview: Part 3 of Series -- Cable Systems (A)
Price: $35.09 EPS 2000 N/A $0.94 N/A N/A
52 Wk Ra: $62 - 31 EPS 2001 $1.23E $1.23E $1.28E 28.5
Mkt Cap: $161.6B EPS 2002 $1.43E $1.43E $1.60E 24.5
FY: 12/31 Price Target $75 $75
Rank 2 2
*Cable is a bedrock of financial stability for AOL Time Warner. It
consistently generates mid-teens EBITDA growth and should
begin generating significant amounts of free cash flow by 2002.
*Cable creates incremental value through new services such as digital and
high-speed data, secures value for cable programming at
AOL networks and will serve as the platform for the next generation of
convergent services such as VOD, IP-based telephony,
interactive TV and home networking.
*For 2001, we are expecting revenue growth of 14% to $6.9 billion and EBITDA
growth of 15% to $3.3 billion. Over the next five
years, we anticipate TWC will maintain compound annual revenue growth of
12-13% and EBITDA growth of 15%.
*While Cable is one of the segments with the most short-term upside
potential due to very strong demand for broadband services, we
are concerned about the declining trend in basic subscriber growth and the
lack of studio support for VOD via cable.
Gaming & Lodging J. Minor, .617.342.4120
Near-Term Caution, Lowering Lodging Estimates & Targets
*Given weaker than expected July and August results, we are lowering our
2H01 lodging estimates. Our estimates conservatively
assume the current weakness continues throughout 3Q01 and 4Q01, as we've
heard no signs of strengthening. Further we now expect
a slower rebound, and have revised our 2002 RevPAR growth forecasts to 1%-2%
from 3%-4%. As a result, we have lowered our
2002 estimates by 5% to 10% or so, putting us below consensus by a similar
amount. We have lowered our price targets on our
lower estimates. While the stocks are already down 10% since the news of the
worse than expected weakness, we think near-term
caution is warranted as the group could remain choppy as estimates decline.
We continue to like the group for the demand recovery
scenario, we just see it as further out.

XL Capital(XL) 1 - Strong Buy J. Newsome, .212.526.6019
Expecting Good News from Monte Carlo
Price: $81.31 EPS 2000 N/A $4.50 N/A N/A
52 Wk Ra: $89 - 65 EPS 2001 $5.00E $5.00E $5.01E 16.3
Mkt Cap: $10.4B EPS 2002 $5.90E $5.90E $5.97E 13.8
FY: 12/31 Price Target $95 $95
Rank 1 1
*We are reiterating our 1 Strong Buy rating on XL Capital at the beginning
of what we expect will be a pivotal month for reinsurance
prices. XL Capital is the only large-cap insurer with the lion's share of
its revenues generated by reinsurance and, therefore, purchase
of XL Capitals shares is the best way for large-cap investors to benefit
from rising reinsurance prices. During the week of September
10, the reinsurance world will convene at the annual Rendez-Vous de
Septembre in Monte Carlo, France. This is the event where
reinsurers, brokers, and reinsurance customers begin their discussions about
reinsurance prices for the important January 1, 2002
renewals. Since approximately 55% of all reinsurance is priced for January 1
effective dates, the pricing commentary that is
generated by this conference is key to the reinsurance industrys
profitability. Based on discussions with reinsurers and insurers we
expect the Monte Carlo conference will affirm that the reinsurance industry
will experience another year of price firming with prices
increases at least as much as last January, or at least 15%-20%.

Bristol-Myers Squibb(BMY) 2 - Buy C. Butler, .212.526.4410
Noteworthy Comments on Vanlev Overture Trial
Price: $59.73 EPS 2000 N/A $2.36 N/A N/A
52 Wk Ra: $75 - 51 EPS 2001 $2.41E $2.41E $2.41E 24.8
Mkt Cap: $119.3MM EPS 2002 $2.67E $2.67E $2.68E 22.4
FY: 12/31 Price Target $75 $75
Rank 2 2
*BMY are conducting several trials with their antihypertensive drug Vanlev.
OCTAVE is a trial in hypertension and has concluded.
Data should be available this month or next. OVERTURE is a trial in
congestive heart failure. It's conclusion is sometime next year.
*Cardiology contacts for whom we have spoken to yesterday indicate that BMY
are asking investigators of the OVERTURE trial to
"switch all patients over to Vanlev in January". This implies that the
number of events in the trial is sufficient to potentially draw a
conclusion (end the trial) maybe in time for the Spring heart meetings (ACC
in March). Further, it may imply that BMY believe
Vanlev is safe enough to switch ALL patients over to the drug, and perhaps
(though only a postulate) the efficacy in a sufficient
population of patients is at least as good if not better than the placebo
ACE inhibitor lisinopril. Our peak sales remain $1.5 billion for
this drug as these comments increase in our minds the probability of success
of this drug in heart failure.


Intel Corp(INTC) 3 - Market Perform D. Niles, .415.274.5252
Guides To Below Midpoint Of Range On Both Revs & GMs (A,C)
Price: $26.10 EPS 2000 N/A $1.65 N/A N/A
52 Wk Ra: $69 - 22 EPS 2001 $0.47E $0.48E $0.51E 54.4
Mkt Cap: $179.8B EPS 2002 $0.60E $0.60E $0.68E 43.5
FY: 12/31 Price Target N/A N/A
Rank 3 3
*As we previewed on Tuesday when we cut our EPS, INTC lowered guidance. Revs
guidance is now slightly below the mid-point of
the range ($6.2B-$6.8B) but below the midpoint on GMs of 47%. This was
despite July and August being better than they expected.
*Processors were better than expected in July and Aug. and PIV processors
have ramped well while flash and networking revs are
expected to be flattish with continuing declines in ASPs in all categories.
*Operating expenses are expected to be about $100M less than originally
expected but equity gains/interest income are expected to be
$90M worse. Intel also has a one-time benefit of $100M in tax provisions
which adds 1.5 cents to EPS for Q3.
*Intel noted that September is the most back-end loaded third month in any
quarter. At some point, Intels statements of July and
August being better than plan and the PC OEMs stating back to school is
below plan have to be reconciled.
Motorola Inc(MOT) 3 - Market Perform T. Luke, .212.526.4993

3Q Expectations Revised Lower On Softer Overall Demand
Price: $13.94 EPS 2000 N/A $0.84 N/A N/A
52 Wk Ra: $36 - 11 EPS 2001 -$0.22E -$0.22E -$0.21E N/A
Mkt Cap: $30.7B EPS 2002 $0.25E $0.17E $0.38E 82.0
FY: 12/31 Price Target $20 $17
Rank 3 3
*Yesterday, global wireless vendor Motorola revised 3Q expectations lower.
Believe announcement continues to highlight challenging
outlook for wireless equip. vendors. Maintain 3 Mkt Perform.
*3Q revs now to remain flat QoQ at ~$7.5B & losses to range $0.05-$0.08.
Prior guidance had been for +5% QoQ sales & a "few
penny loss". New 3Q $7.4B/($0.08) Vs $7.9B (+5% QoQ) & -$0.05. New 2001 ests
of $30.7B/($0.29).
*Slower sales growth reflects softer overall demand for MOT's equip.,
particularly w/in wireless infra. arena (LA, Europe & possibly
China). Margins in wireless infra. & semis expected to cont. to reflect
difficult macro env.
*Handsets may be brightspot in 3Q w/sales & profits expected to rise QoQ.
However,we remain cautious on outlook for 4Q/1Q02
consumer pull-thru demand
*N-term believe shares could find support ~1x our new 01 revs or $14.
Believe a floor for the shares may be at 0.8x revs or $12. New
l-term target $17.


Shell Transport(SHEL.L) J. Elden, 44.20.7260.1412
Premium performer, but on probation
Price: EPS N/A N/A N/A N/A N/A
52 Wk Ra: EPS N/A N/A N/A N/A N/A
Mkt Cap: EPS N/A N/A N/A N/A N/A
FY: N/A Price Target N/A N/A
*Shell's comments with its second quarter figures about the outlook for
Semiconductor Capital Equipment E. White, .212.526.4744
Broad Scale EPS Estimate Reductions
*We are cutting our estimates for several semiconductor equipment companies
we cover, to reflect continuing softness in the
electronics industry, and a greater likelihood of a delayed pickup in
semiconductor capital spending.
*A number of chip companies, including Intel, Taiwan Semiconductor
Manufacturing, and second tier chip manufacturer's, appear to
be eyeing 2002 projects with caution given the current environment.
*There continue to be few signs of a near-term recovery in the end markets
that are important to the semiconductor equipment industry
(PC, wireless, and telecom).
*Some equipment companies are being helped near-term by SAB 101. For these
companies, the recovery could be delayed as SAB
101 has the opposite affect at the beginning of an upturn.

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 = 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
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.

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- MF September 7th 2001.pdf