<<MF September 6th 2001.pdf<<
Good Thursday Morning - Comments From The Local
This morning, the non-manufacturing National Association of Purchasing
Managers (NAPM) unexpectedly fell to 45.5 in August from 48.9 in July. New
Orders fell to 45.9 from 48.6 (note that this component is not seasonally
adjusted). The services that reported the most negative environment,
according to this survey, were: communications, real estate and
construction. Blending these data with the manufacturing NAPM, the total
economy NAPM dropped to 46.0 from 47.8 in July.
Tomorrow the Labor Department releases the employment data for August.
Lehman Brothers expects a payroll gain of 28,000 new jobs in the non-farm
The 30 -year bond yield is 5.40%.
The 10-year is trading at 4.85%.
The 5-year is trading at 4.40%.
Spot crude oil is trading at $27.57 p/b.
Natural Gas - Henry Hub - is trading at $2.44 p/mcf.
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
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.
Yahoo!, Inc(YHOO) 2 - Buy H. Becker, .212.526.1764
Buy On the Pullback! (C)
OLD NEW STREET P/E
Price: $10.64 EPS 2000 N/A $0.48 N/A N/A
52 Wk Ra: $119.25 - 10.64 EPS 2001 $0.03E $0.03E $0.05E 354.7
Mkt Cap: $6.3B EPS 2002 $0.10E $0.10E $0.13E 106.4
FY: 12/31 Price Target $20 $20
Rank 2 2
*Yahoo!'s stock has been extremely weak, down 40% in the past month, and
trading at a 52-week low of $10.64. We view this
pullback as a compelling buying opportunity.
*Much of this decline is attributable to widespread speculation that Yahoo!
will not hit its 3Q estimates due to the eroding advertising
*After carefully analyzing our forecast, we believe that a significant
shortfall is unlikely: Our 3Q estimates already factor in the dot-com
meltdown and the prolonged weak economy.
*We recognize that Yahoo!s challenges are formidable and a re-acceleration
in growth may be a few quarters off. However, we
believe that estimates are low enough and that the valuation has become much
*We believe that the downside on the stock is limited and underpinned by the
potential sale of the company.
Cable Communications Services L. Warner, .202.452.4705
Cox & Comcast Terminate @Home Relationship
*We believe that Cox's and Comcast's decision to end their relationships
with Excite@Home will be very positive in the long term for
both companies. However, we believe that the transition of service from At
Home's infrastructure to a new infrastructure poses
execution risk in the first half of 2002.
*Cox and Comcast notified Excite@Home that they will terminate their
respective agreements with the company effective June 4,
2002. This means that Cox and Comcast must migrate their high speed data
customers from the ATHM platform to new platforms in
the first half of next year, a major undertaking.
*We have revised our forcasts for both companies to reflect, relative to
previous estimates; higher revenue in 2002 and 2003, higher
OCF in 2003, lower HSD net adds in 1H02, and higher capex in 2002.
Major Pharmaceuticals C. Butler, .212.526.4410
Maybe You Did Not Hear..Drugs Might Work in Q4!
*The US Pharma sector is trading at a 12 percent premium to the S&P.
Historically this is less than the 27 percent premium of the past
several years. We provide comments on our perception of several catalysts
that may drive the drug index through the end of this year.
*The first catalyst may come next week. Lilly's Xigris for sepsis will be
before the FDA on September 12. We anticipate approval
and a subsequent Q4 launch.
*Bristol Myers will highlight data on their new hypertensive drug Vanlev
later this month or early next. Five key analyst/investor
meetings will transpire between October and December for LLY, BMY, PHA, MRK,
and PFE. SGP will host an ADAM meeting in
*With a weaker dollar, Q4 looks strong for revenue acceleration as the S&P
earnings are being pressured.
IDEC Pharmaceuticals(IDPH) 2 - Buy M. Wood, .212.526.4035
Preview of Zevalin Panel Meeting (C)
OLD NEW STREET P/E
Price: $59.27 EPS 2000 N/A $0.30 N/A N/A
52 Wk Ra: $78 - 33 EPS 2001 $0.55E $0.55E $0.57E 107.8
Mkt Cap: $7.5B EPS 2002 $0.80E $0.80E $0.88E 74.1
FY: 12/31 Price Target $75 $75
Rank 2 2
*IDEC's Zevalin will be reviewed by an FDA advisory panel on September 11.
*We think the main areas of focus for the panel will be 1) efficacy, with
emphasis on the stage of disease at which the product should
be used, 2) safety concerns, particularly with regard to hematological
toxicity, and 3) the dosing techniques used to administer the
*We think the chances of a positive outcome at the panel meeting are 75% or
greater. We forecast Zevalin launch early in 2002 and
revenues of $70 million in the first year.
Semiconductor Capital Equipment E. White, .212.526.4744
3Q EPS Preview -To Preannounce or Not To?
*Chipmakers continue to trim capital spending budgets resulting in weak 3Q
earnings for semiconductor equipment companies. We
think 3Q orders will be lower than 2Q and expect EPS guidance to be revised
lower for selected companies. This could limit near-term
upside potential in equipment shares.
*Many companies could face an uphill battle to meet 3Q expectations. Those
whose earnings may be more at risk than others include
ACLS, ASYT, CYMI, EGLS, FSII, LRCX, LTXX, PRIA, PHTN, TER, TWAV and VSEA.
*In summary, we see a high likelihood of multiple earnings preannouncements
over the coming weeks. We also believe that many of
the companies mentioned above could set lower expectations in 4Q than
consensus estimates currently reflect.
Ameren Corp(AEE) 3 - Market Perform D. Ford, .212.526.0836
Big Yield Utility
OLD NEW STREET P/E
Price: $41.50 EPS 2000 N/A $3.45 N/A N/A
52 Wk Ra: $47 - 37 EPS 2001 N/A $3.30E $3.36E 12.6
Mkt Cap: $5.7B EPS 2002 N/A $3.30E $3.46E 12.6
FY: 12/31 Price Target N/A $41
Rank N 3
*We are initiating coverage of Ameren with a 3-Market Perform rating. While
the Missouri rate case overhang could last into next
year, AEE's 6.12% yield should hold price firm.
*In addition to a good yield, other AEE positives are: 1) A track record for
delivering on earnings promises; 2) A well-run utility; and
3) Attractive geography for competing in unregulated energy markets.
*Our $3.30 2002 EPS estimate incorporates a "middle of the road" Missouri
rate case outcome in early Spring. We assume a $130M
P-T rate cut (-$0.46/share) and an 11% ROE.
*AEE's Illinois/Missouri location favorably positions it with nearly 25
adjacent utility trading partners.
*Our $41 target is 12.5x our 2002E. AEE's above-average yield (6.1% vs. 4.1%
for utilities and 1.4% for the S%P 500) and good
operations should provide support despite rate case overhang.
International Rectifier(IRF) 3 - Market Perform D. Niles, .415.274.5252
A Pure-Play in Power Semis
OLD NEW STREET P/E
Price: $35.33 EPS 2001 N/A $2.30 N/A N/A
52 Wk Ra: $70 - 27 EPS 2002 N/A $1.13E $1.20E 31.3
Mkt Cap: $2.2B EPS 2003 N/A $2.09E $2.31E 16.9
FY: 6/30 Price Target N/A N/A
Rank N 3
*Recognized as one of the oldest, dedicated pure-plays in power semis, IRF
is capitalizing on the emerging growth opportunities in
power mgnt which should lead to above average growth once the semiconductor
*Dataquest estimates that 70% of the world's power MOSFETs are produced by
IRF or use its patented technology. The leadership
position in power components provides IRF with a platform to leverage
expansion into high margin power systems businesses.
*At 2.2x LTM P/S, we believe IRF represents a compelling valuation relative
to its peers given opportunity for margin expansion.
However, we are cautious near-term given lack of evidence into a sustained
recover in the broader semiconductor market.
*We initiate coverage on IRF with a 3-MP rating on a leader in power
Mortgage Finance B. Harting, .212.526.3007
Historical Performance Indicates Futher Upside
*We have gone back in time, relating historic stock performance of our
sector following an easing cycle, defined as three consecutive
rate decreases. Historically, the group has continued to show strong
performance after the last rate cut into a period of rate increases.
The result has been an outperformance of the S&P 500 coming out of three of
the last four interest rate cuts.
Wells Fargo(WFC) 1 - Strong Buy H. Dickson, .212.526.5659
Residential Real Estate Update (A)
OLD NEW STREET P/E
Price: $46.47 EPS 2000 N/A $2.53 N/A N/A
52 Wk Ra: $56 - 40 EPS 2001 $2.10E $2.10E $2.06E 22.1
Mkt Cap: $79.7B EPS 2002 $3.20E $3.20E $3.13E 14.5
FY: 12/31 Price Target $65 $65
Rank 1 1
*The LEH economic opinion is that the real estate market is not just a
bubble waiting to burst, and much of the doom and gloom in the
market may be overblown. Based on this opinion, we believe that a company
such as WFC may have upside potential when the
unfounded fears in the market are lifted. We continue to rate WFC 1 - Strong
*To the extent that this view is correct, WFC should benefit from stronger
revenue growth in the mortgage and home equity
businesses. This should help to offset businesses that may have weaker
*The company should also be positioned to positively benefit from the
cross-sell opportunities which come with mortgage and home
*WFC may be a good valuation play as the stock currently may have the
market's negative predictions for the real estate market built
Greater Bay Bancorp(GBBK) 2 - Buy B. Vandervliet, .212.526.8893
Residential Trends: Reason For Continued Caution (C)
OLD NEW STREET P/E
Price: $26.22 EPS 2000 N/A $1.62 N/A N/A
52 Wk Ra: $44 - 20 EPS 2001 $1.89E $1.89E $1.92E 13.9
Mkt Cap: $1.1B EPS 2002 $2.15E $2.15E $2.19E 12.2
FY: 12/31 Price Target $30 $30
Rank 2 2
*While we do not believe given the low weighting of residential exposure
that credit quality in this area should be a primary concern
among investors, we believe on balance it is reason for continued caution.
*Given the low concentration of residential lending exposure at GBBK, just
6% of the portfolio, this is not our area of primary
*Our concern is focused on the 47% concentration of commercial real estate
and construction loans in the portfolio which we believe
may be under greater pressure in the intermediate term.
*Most recently we highlighted credit trends at GBBK in a note dated 8/14
entitled "More Real Estate Data, More Caution."
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 6th 2001.pdf