Enron Mail

From:david.morris@lehman.com
To:ordan.larimore@lehman.com
Subject:The Morning Market Call - Thursday May 31st, 2001.
Cc:
Bcc:
Date:Thu, 31 May 2001 12:23:08 -0700 (PDT)

<<MF May 31st 2001.pdf<<

Good Thursday Morning - Comments From The Local
Guys!

With the markets short-term overbought, investors should not be surprised if
negative corporate news takes its toll on stocks over the next month. As we
have mentioned, the corporate confession period is a great time for
companies to lower expectations. However, investors need to be focused on
the big picture. The Federal Reserve is strongly on the side of the
investor. Additionally, with successful passage of the tax bill through
Congress, the Treasury Department will be mailing refund checks to
taxpayers, as the tax-cut is retroactive to January of this year. We believe
the economy will respond positively to this 'twin pronged' stimulation.
Investors should take advantage of any weakness in their favorite stocks. We
look forward to hearing from our readers.

Tomorrow, we look for another weak employment report for May. Overall
employment growth is expected to slip another 15,000, following a 223,000
decline in April. The unemployment rate is projected to rise a tenth to
4.6%.


The 30-year US T-Bond yield is 5.77%. .
The 5-year is trading at 4.94%.
Spot crude oil is trading at $28.39 p/b.
Natural Gas - Henry Hub - is trading at $3.92 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.

IMPACT CALLS
Broadcasting/Radio & TV W. Meyers, .212.526.6011
Time for a Breather?
*With the stocks trading 26% higher in the face of downward revisions (since
mid-April), we believe near-term upside is limited.
During this period, forward multiples expanded from 13.8x to 16x, a level
not seen since July '00. While long-term fundamentals
remain intact, we expect shares to trade down modestly in the near-term. We
emphasize that this is not a change in our long-term
view, rather a trading call based on current multiples, visibility and
expectations.
*The RAB is expected to release April results next week and we are
projecting industry contraction in the 8-10% range. While
anecdotal evidence suggests sequential improvement in May, visibility beyond
June remains murky. Overall, we are revising our FY
2001 ad growth forecast to 1-2% and maintaining our 2002 projection of 7-8%.

Entertainment S. Linde, .212.526.4009
What's Next for the Entertainment Group?
*We remain bullish on the prospects for the Entertainment sector but
anticipate a modest pull back before the stocks work higher. The
stocks have outpaced the S&P 500 by 37.4% this year as investors look ahead
to easier comparisons in 4Q and 2002.
*Several near-term positives are now factored in the stocks and investors
will face the realization that tough radio and TV comps will
continue through the third quarter. Since April 4, 2001 the S&P
Entertainment Index has risen 46.4% vs. 17.2% for the S&P 500 on
the heels of several rate cuts, settlement of the writers negotiations and
hopes for a better upfront.
*Investors looking for a dramatic pull back will likely be disappointed, and
instead we recommend taking advantage of buying
opportunities. VIAB and LMGA remain our top picks.

Starbucks Corp(SBUX) 2 - Buy M. Speiser, .212.526.3255
May Comps due post-close/Maintain +1-3% estimate (C)
OLD NEW STREET P/E
Price: $20.09 EPS 2000 N/A $0.36 N/A N/A
52 Wk Ra: $26 - 15 EPS 2001 $0.46E $0.46E $0.46E 43.7
Mkt Cap: $8.0B EPS 2002 $0.58E $0.58E $0.57E 34.6
FY: 9/30 Price Target $25 $25
Rank 2 2
*Decelerating Comps - albeit to be expected - will likely limit valuation
upside. Little visibility on a return to Comps momentum.
Maintain 2-rating
*For May, we expect +1-3% Comps on 0-1% traffic & +1-2% avg check; +2 1/2%
Pricing, of which about 1/2% burned off in May,
should more than offset tradedown; i.e neg mix. Slower pedestrian traffic, a
tough yr-ago & no price hikes causing the decel. May
Comps due after the market close
*FYI; last May, Comps rose 9% on a tough 5% Traffic rise. In Apr 01, Comps
+2% vs a tough 12%, but Apr '00 Traffic (+3%) was an
easier lap
*Expect rev's to rebound to <20% on less "lumpy" Specialty sales. Unit
opening run-rate will likely continue above the 1,100 full-yr
target. Maintain EPS view; Much lower coffee costs to drive mgns
*At 38x, with Comps Decel visible & pricing not being taken, near-term
upside is limited. Any retreat to $16-$18 - a low 30-multiple
- would more than discount the issues. Maintain 2-rating

AmeriSource Health(AAS) 1 - Strong Buy L. Marsh, .212.526.5315
CREEPING CLOSER? Upd. merger view leads to tgt incr.
OLD NEW STREET P/E
Price: $51.89 EPS 2000 N/A $1.89 N/A N/A
52 Wk Ra: $58 - 18 EPS 2001 $2.27E $2.27E $2.27E 22.9
Mkt Cap: $2.7B EPS 2002 $2.70E $2.70E $2.69E 19.2
FY: 9/30 Price Target $58 $63
Rank 1 1
*We are raising our price target on shares of AAS this morning, based our
upticked stated odds of ultimate success of proposed BBC
merger.
*Our odds of success creep up from 60/40 to 65/35, based on a) last Friday's
Muris FTC confirmation and b) some add'l constructive
customer feedback.
*We provide a more detailed review of a) cos' cust. mixes, b) distr. center
networks, c) mgmt. & board composition, d) balance sheet
comps.
*We also review specifics around cost-saving opportunities, and again
suggest that more savings than originally discussed by the two
co's by yr. 3
*We also highlight sev'l initiatives the two organiz. are pursuing to
highlight integration priorities. More details after our ASHP visit
next week.
*With the above, we look for speculation around a C02 est. some $.10-$.15
above our $2.80C02 w/ merger, certainly doable. W/ that,
our $63 reps. 21.5x our possible $2.90 for C02.

FOCUS STOCKS
Microsoft Corp(MSFT) 1 - Strong Buy M. Stanek, .650.289.6027
Trial Update and Office XP Release (C)
OLD NEW STREET P/E
Price: $70.34 EPS 2000 N/A $1.70 N/A N/A
52 Wk Ra: $83 - 40 EPS 2001 $1.81E $1.81E $1.80E 38.9
Mkt Cap: $389.5B EPS 2002 $1.91E $1.91E $1.94E 36.8
FY: 6/30 Price Target $115 $115
Rank 1 1
*We cannot predict when, but we believe that a ruling will come at anytime.
Possible scenarios: 1) If the case is not completely
overturned, then a 70% chance the case will be remanded to lower court for
penalty phase, 2) 0% chance the States settle before
ruling, 3) 100% chance the States petition Supreme Court for hearing if case
partially upheld.
*Bottom-line: Unless completely overturned, there is still no easy near-term
exit for MSFT. However, we believe that MSFTs long-term
litigation position has grown stronger. Our view is that the ultimate remedy
will be to tighten the consent decree - and structural
relief will be left off the table. We harbor concerns that investors are
discounting a complete MSFT victory, and would use any
volatility from this excess litigation noise to accumulate the stock.
*MSFT will kick off the release of Office XP today. While informative, dont
expect changes to June qtr estimates of $6.4B revs and
$0.42 EPS.
*PC biz still flat, but we expect MSFT to make June ests on 1) def revs, 2)
Office XP, 3) server apps

COMPANY/INDUSTRY UPDATES
Managed Care L. Marsh, .212.526.5315
Industry News Update: California Data and M+C Filing Delay
*We wanted to highlight data points from Cal. as well as the recent HHS
announcement to delay the filing date for M+C and possible
ramifications:
*Maxicare, a small health plan, on Friday said its Cal. subsidiary had filed
Chapter 11. The plan had 275K members, or less than 10%
of Kaiser, WLP, HNT or PHSY. We note that the co. had many operating issues,
including its lack of size, that prevented a
competitve threat.
*Also, we note some apprehension around recent unemployment claims in
California, with unemployment up to 4.8% in April. The
theory states that less jobs means disenrollment.
*Lastly, HHS head Thompson, has indicated that the required date for HMOs to
file M+C changes moves to 9/17, possibly indicating
further changes to come, though we would speculate perhaps "buying time."
Gaming & Lodging J. Minor, .617.342.4120
April RevPAR -2.6%, It's Darkest Before the Dawn
*Yesterday, Smith Travel Research released April lodging industry data that
reflects a 2.6% decline in RevPAR growth. Many
companies have been indicating that 2Q01 will be weaker than 1Q01, yet it's
darkest before the dawn and 2H01 should be better.
*In April, supply growth remained at 2.9%, while demand dipped to -0.8%. In
2H01 and 2002 supply growth should fall and demand
should rebound.
*The intermediate term outlook is brighter and we believe investors are
looking ahead as the lodging stocks have (and should
continue) to outperform the market as lodging fundamentals improve. Our
favorites remain Marriott, Starwood and Host Marriott.

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 May 31st 2001.pdf