<<MF June 4th 2001<<
Good Monday Morning - Comments From The Local Guys!
Lehman Brothers' U.S. Equity Strategist, Jeff Applegate, believes that the
stock market is "climbing a wall of worry". In his weekly comments, Jeff
believes that investors are jittery about the fragility of the stock market
rally, concerned about corporate profits and the economic outlook as well as
possible inflation. However, Jeff believes that the earnings trough is
imminent and that stronger GDP growth lies ahead. His bottom line is that
the equity rally over the last couple of months has a "firm footing" and
The 30-year US T-Bond yield is 5.67%.
The 10-year note yield is 5.32
The 5-year is trading at 4.89%.
Spot crude oil is trading at $28.25 p/b.
Natural Gas - Henry Hub - is trading at $4.06 p/mcf.
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
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.
Gillette Co(G) 3 - Market Perform A. Lefever, .212.526.5801
Choppy Waters Before the Calm
OLD NEW STREET P/E
Price: $28.75 EPS 2000 N/A $1.18 N/A N/A
52 Wk Ra: $37 - 25 EPS 2001 $1.01E $1.01E $1.06E 28.5
Mkt Cap: $30.4B EPS 2002 $1.11E $1.11E $1.19E 25.9
FY: 12/31 Price Target $24 $24
Rank 3 3
*While we expect Kilts' June 6 presentation to offer revolutionary insights
about longer-term upside at Gillette, the nearer-term
message is likely to be more pain on the horizon first.
*The best long-term opportunity at Gillette is fixing largely self-inflicted
problems to enable its premium portfolio to drive stronger
*Nearer-term, at least for the duration of CY2001, we expect Gillette's
resources to be more focused on correcting earnings growth
obstacles such as excess trade spend and trade inventories, poor internal
information reporting, excess capital levels, and weak returns
*The stock is currently trading at levels which suggest earnings recovery
already priced-in. We would be more constructive on the
stock at a market multiple, implying a $24 price on our below consensus CY01
Specialty Pharmaceuticals R. Silver, .212.526.5387
Strong Generic Stock Moves; What's Sustainable
*Generic drug stocks have outperformed strongly during the last month and
week, driven primarily by a large concentration of positive
company-specific news further fueled by an element of momentum style
investing. With overall valuations still off the highs of
2000, we believe that current levels can be sustained though significant
multiple expansion is unlikely. Based on last week's sharp
run-up, a near-term breather is warranted. However, we believe that further
near-term/medium term outperformance remains
possible for a select few names based on likely pending newsflow and/or
*Ivax remains attractive trading idea based on likelihood of EPS surprises
and upward revisions; Watson the best value name with
valuation catch-up likely over the next year.
Allstate Corp(ALL) 1 - Strong Buy J. Newsome, .212.526.6019
Big Boys are Raising Prices (A)
OLD NEW STREET P/E
Price: $43.10 EPS 2000 N/A $2.72 N/A N/A
52 Wk Ra: $46 - 22 EPS 2001 $3.04E $3.15E $3.07E 13.7
Mkt Cap: $31.5B EPS 2002 $3.45E $3.45E $3.46E 12.5
FY: 12/31 Price Target $50 $50
Rank 1 1
*We are reiterating our 1-Strong Buy on Allstate. In the past week the stock
has suffered a minor decline for no apparent reason, and
we feel it would be a good time to revisit the stock. Indeed, our thesis
that personal lines prices would continue to improve in 2001
and 2002 seems to be coming true. The big insurers including State Farm are
raising rates. In our view Allstate remains the best-poised
insurer to benefit from a less competitive personal lines market. Unlike its
competitors, Allstate did not participate as much in
the fierce price wars of the late 1990s. It therefore remained profitable on
an underwriting basis where almost all did not. And in the
subsequently is better prepared to take advantage as most other insurers
struggle to regain profitability mostly likely through a
combination of maintaining their excellent underwriting profitability and
gaining market share. Our price target remains$50 per
Fifth Third Bancorp(FITB) 1 - Strong Buy H. Dickson, .212.526.5659
Modeled for 15%+ EPS growth (C)
OLD NEW STREET P/E
Price: $58.87 EPS 2000 N/A $1.88 N/A N/A
52 Wk Ra: $61 - 40 EPS 2001 $2.40E $2.40E $2.38E 24.5
Mkt Cap: $28.4B EPS 2002 $2.75E $2.75E $2.76E 21.4
FY: 12/31 Price Target $70 $75
Rank 1 1
*Our recent management visit in Cincinnati focused on FITB's business model,
its business lines and the Old Kent merger. Bottom
line, things are going well. The success of the company is tied in part to
its unique and extremely focused business model which has
yielded 15%+ EPS growth. We continue to rate FITB 1 - Strong Buy and are
raising our price target $5 to $75.
*Decentralization is a major aspect of FITB's business model and ownership
incentives are offered at all levels of the company.
Accountability and performance measurement are also central to the model.
*The Old Kent integration appears to be going smoothly. FITB began this
initiative in December, about four months before the deal
closed. Fifth Third believes that the Chicago market should be a good source
of growth in the future.
*The recently filed 8-K indicates revenue growth should remain strong this
year and asset quality trends should remain superior to the
Universal Health Services(UHS) 1 - Strong Buy A. Feinstein, .212.526.5496
Universal Health Services:
OLD NEW STREET P/E
Price: $39 EPS 2000 N/A $1.58 N/A N/A
52 Wk Ra: $56 - 27 EPS 2001 $1.91E $1.91E $1.91E 20.4
Mkt Cap: $2.6B EPS 2002 $2.22E $2.22E $2.22E 17.6
FY: 12/31 Price Target $115 $57
Rank 1 1
*Highlights of Lehman Sponsored UHS Behavioral Health Site Visit Confirm
*Based on our interaction with the company we suggest 1) continued rev
momentum in both acute care and behavioral health, 2)
behavioral health will continue to exceed expectations, 3) margins are
beginning to improve.
*The company suggested that it will still recognize several million dollars
of incremental synergies at the Charter facilities and feels
that it can expand the top line with addition of services and from new payer
*We are raising our estimate for the second quarter to $0.48 from $0.47
(split adjusted for the stock split effective as of today),
bringing our estimate for the year to $1.91 from $1.90. We continue to
suggest that the shares of UHS remain a compelling value at
Semiconductors & Communications A. Chanda, .415.274.5370
Q2 weak with Q3 guidance cloudy
*We believe that the communications components companies are facing a
difficult Q2 with no signs of improvement near-term. We
would recommend the CPE players with strong product cycles (Intersil,
Marvell) and avoid the telecom sector except Agere on
Du Pont(DD) 3 - Market Perform S. Vasnetsov, .212.526.3212
Is there a life after the death of life-sciences concept?
OLD NEW STREET P/E
Price: $46.4 EPS 2000 N/A $2.73 N/A N/A
52 Wk Ra: $51 - 38 EPS 2001 $2.10E $2.10E $2.04E 22.1
Mkt Cap: $48.5B EPS 2002 N/A N/A $2.58E N/A
FY: 12/31 Price Target $45 $45
Rank 3 3
*After DD annual meeting on business and strategy update, it is still
questionable that the current strategy could produce long-term
EPS and ROCE targets, excluding an obvious ramp-up in 2002-03, from the
current trough of the economic cycle.
*Our cautious macro view on DD remains intact. DD underperformed most large
cyclicals over the past two years, and so far we see
no likely company-specific catalyst to change its near-term performance
and/or the gloomy attitude of investors towards DD.
*Portfolio issues: pharma business sale is delayed, but on track; DD is not
interested in Aventis agrochem. unit; and other than small
bolt-on acquisitions, no major changes are expected in the next 4 quarters.
*We are reducing our 2001 EPS estimates: 2Q from $0.55 to $0.50, and FY from
$2.10 to $1.95. The EPS cut is due to the impact of
Europe's economy slowing down, and we re-iterate our "Market Perform"
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 June 4th 2001