Enron Mail

To:larimore@enron.com, jordan.larimore@lehman.com
Subject:The Morning Market Call - Wednesday September 5th, 2001.
Date:Wed, 5 Sep 2001 12:05:11 -0700 (PDT)

<<MF September 5th 2001.pdf<<

Good Wednesday Morning - Comments From The Local

Abbreviated Call.

The 30 -year bond yield is 5.47%.
The 10-year is trading at 4.96%.
The 5-year is trading at 4.50%.
Spot crude oil is trading at $27.03 p/b.
Natural Gas - Henry Hub - is trading at $2.41 p/mcf.

AD Time:

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Lehman's Research

Citrix Systems(CTXS) 1 - Strong Buy M. Stanek, .650.289.6027
Moment of Truth - What Will MSFT Build Into Their Server? (C)
Price: $31.43 EPS 2000 N/A $0.61 N/A N/A
52 Wk Ra: $37 - 16 EPS 2001 $0.75E $0.75E $0.75E 41.9
Mkt Cap: $5.8B EPS 2002 N/A N/A $0.93E N/A
FY: 12/31 Price Target $40 $40
Rank 1 1
*We have run beta tests on Windows 2002 Server and have verified many of the
additional features of Windows Terminal Services
(WTS) that will be built into it.
*Our research indicates that while there have been improvements made to the
base WTS architecture, we see no evidence of Microsoft
encroaching on any of the key application management features found in
either Citrix MetaFrame 1.8 or MetaFrame XP.
*This is very good news for Citrix, as the multiple on the shares have been
unduly suppressed by the specter of MSFTs proposed
server road map.
*Windows 2002 Server (Whistler) is due for launch in March 2002, and the
next release of the Server (Blackcomb) wont occur until
late 2003-2004.
*We believe this new news should be transferred into a higher multiple for
the shares immediately. We are comfortable with 40X on a
potential $1.00 per share (we are currently at $0.92) for FY02.

Advanced Energy(AEIS) 3 - Market Perform T. Berg, .212.526.5276
Lowering Rating & Earnings Estimates (C)
Price: $22.83 EPS 2000 N/A $1.88 N/A N/A
52 Wk Ra: $58 - 15 EPS 2001 -$0.48E -$0.52E -$0.40E N/A
Mkt Cap: $723.7MM EPS 2002 $0.10E -$0.25E $0.00E N/A
FY: 12/31 Price Target $38 $20
Rank 2 3
*We remain cautious on AE's shares near-term and are lowering our rating to
3 Market Perform from 2 Buy as near-term fundamentals
will likely remain weak due to continued order cancellations & pushouts. We
also believe excess channel component inventory will
weigh negatively on AE near-term. Bottom line is that we see more near-term
downside to AE's share price than upside.
*Our rating downgrade is driven by: 1) weak end mkt demand and excess OEM
component inventory and 2) no earnings visibility.
We believe that 4Q01 and 2002 street earnings ests. are too high and we
expect AE to lower near-term expectations when it reports
3Q earnings on October 11.
*AE's customers do not have any material degree of confidence that their
orders have bottomed. This was evidenced by NVLS' conf
call last Thur when it lowered expectations for 3Q01 orders and set the
stage for lower 4Q01 expectations.
*As a result we are lowering our '01 & '02 EBG ests. We are also reducing
our price target to $20.

National Semiconductor(NSM) 3 - Market Perform S. Dickson, .415.274.5229
NSM On track for Aug Qtr, but Nov still a ?
Price: $33.05 EPS 2001 N/A $1.54 N/A N/A
52 Wk Ra: $48 - 17 EPS 2002 -$0.63E -$0.63E -$0.62E N/A
Mkt Cap: $5.8B EPS 2003 N/A N/A $0.58E N/A
FY: 5/31 Price Target N/A N/A
Rank 3 3
*We expect NSM to report Aug qtr results this Thursday in-line with the cos
guidance of revs down 15-20% q/q. We believe the co. is
working down inventory and is benefiting from an uptick in wireless (25%
sales) and PCs (15% sales). However, we remain cautious
on the stock given the Nov qtr outlook may be weaker than expected.
*We believe early signs of a sustained recovery in wireless are pre-mature
given comments by Ericsson that a broad recovery is still 1-2
qtrs away. Also, we believe those investors looking for strong
back-to-school selling season (PCs) will likely be disappointed.
*With NSM up 21% since Jul 2nd, we believe it fully reflects the firming of
demand in wireless and PCs, but does not discount a
potentially disappointing Nov qtr. As a result, we think the stock could
trade down into the mid-$20s assuming the company needs to
lower street ests for the Nov qtr, which we are modeling at +5% q/q rev
growth. We believe guidance could call for revs flat to
slightly up q/q.

Diebold Inc(DBD) 3 - Market Perform D. Zwyer, .212.526.2008
Stock At Target: Lowering Rating on Valuation
Price: $40.08 EPS 2000 N/A $1.92 N/A N/A
52 Wk Ra: $40 - 23 EPS 2001 $1.95E $1.95E $1.97E 20.6
Mkt Cap: $2.9B EPS 2002 $2.10E $2.10E $2.26E 19.1
FY: 12/31 Price Target $40 $40
Rank 1 3
*We are lowering our rating on Diebold's stock to 3 Market Perform from 1
Strong Buy on valuation. The stock has increased 53%
since we recommended it in March '00 vs a 24% drop in the S&P 500, and is at
our $40 price target. At 19x est 02 EPS of $2.10 we
believe the stock is fully valued.
*There has been a lot of good news surrounding Diebold's stock in recent
months, including ATM (automated teller machine)
European market penetration, cost cutting initiatives, the exit of
competitor Mosler from the bank security products business,
expansion of its voting machine business, and progress in supplying
components for self-service supermarket checkout. Also, new
management (in the past two years) is focused on international growth and
improving margins. Diebold's strong debt-free (net)
balance sheet will enable it to continue to make strategic acquisitions.
While these factors point to a positive outlook for Diebold, we
believe the stock price fully reflects the potential. Diebold's stock has
traded primarily in a range of 12-20x earnings over the past
decade and is currently near the high end of that range.

Hardlines A. Rifkin, .212.526.1922
*Retailers report August comps on Thursday, September 6.
*Back-to-School essentially in-line with reduced expectations. Maintain
selectivity. Many retailers have seen little benfit from rebate
checks. Our Q4 study shows retailers underperform in Q4.
*Home Furnishing- Back-to-School slightly below plan for some retailers -
consumers gravitate towards promotionally-priced
*Home Improvement- 2Q comps represent the first qtr of sequential
improvement. Look for easier comps/lumber comparisons to
boost comps in 2H01. Positive implications of Fed's 300 bp reduction in
rates not likely to help fundamentals until 1H02.
*Consumer Electronics- Sales only marginally aided by benefits of rebate
checks. Look for new product introductions like Xbox and
Gamecube to help boost comps in 4Q.

Devon Energy(DVN) 2 - Buy T. Driscoll, .212.526.3557
Lowering Devon's Target Price
Price: $46.27 EPS 2000 N/A $5.49 N/A N/A
52 Wk Ra: $67 - 46 EPS 2001 $5.50E $5.50E $5.83E 8.4
Mkt Cap: $4.0B EPS 2002 $2.70E $2.70E $3.98E 17.1
FY: 12/31 Price Target $69 $53
Rank 2 2
*Devon announced yesterday that it would acquire Anderson Expl for US$4.6
bn. Acq'n price is equivalent to a debt-adjusted cash
flow multiple of 8.0-8.5 times -- a sharp premium to Devon's trading
multiple of about 5 times. We are lowering our target price from
$69 to $53 to reflect the premium paid for the acq'n. Our revised target
assumes that DVN's multiple will expand from 5.0 times
PICF for DVN standalone to about 6.5 times. However the premium price paid
has led us to lower our target price -- maintaining buy
*Acquisition will expand reserves by 35 percent -- but firm value will rise
by 44 percent.
*If investors were to value the acquired cash flows at the same multiple
that Devon trades at, the shares would need to fall by more
than $10 per share from the $46 pre-announcement share price.
*We will review our earnings & cash flow estimates once we receive guidance
from the company.


Celgene Corp(CELG) 2 - Buy M. Wood, .212.526.4035
Initiating with 2 - Buy and 12 month price target of $38 (C)
Price: $27.81 EPS 2000 N/A -$0.01 N/A N/A
52 Wk Ra: $76 - 14 EPS 2001 N/A $0.09E N/A 309.0
Mkt Cap: $2.1B EPS 2002 N/A $0.31E N/A 89.7
FY: 12/31 Price Target N/A $38
Rank N 2
*Celgene has established a valuable franchise in oncology with lead product
Thalomid, which we think can achieve peak sales of $230
*The IMiDs and SelCID programs have been devised to build on the success of
Thalomid and potentially yield new drugs for
inflammatory diseases and cancers. The company also has a drug discovery
platform in gene regulation.
*We expect Ritadex for attention deficit disorder (licensed to Novartis) to
be a contributor to revenues from 2002 onwards. The
product's success will ultimately depend on additional clinical data as well
as development of new formulations.
*We have valued Celgene by applying a 65 multiple to our 2005 EPS (fully
taxed) of $1.30. Discounting this at 30% per year over
three years gives us a 12 month price target of $38.


Harley-Davidson(HDI) 1 - Strong Buy F. Kantor, .212.526.5562
We Hit The Road Again; This Time to Visit HDI
Price: $48.32 EPS 2000 N/A $1.13 N/A N/A
52 Wk Ra: $54 - 34 EPS 2001 $1.38E $1.38E $1.38E 35.0
Mkt Cap: $14.8B EPS 2002 $1.60E $1.60E $1.60E 30.2
FY: 12/31 Price Target $60 $60
Rank 1 1
*We must reiterate our enthusiasm for HDI following our tour of the co's
York, PA plant yesterday. We are particularly excited about
the prospects for the plant expansion as we firmly believe the new facility
could spur the gross margin expansion we have been
discussing for some time now. Despite concerns overhanging the rest of the
consumer sector, we continue to believe in the HDI story
and reiterate our 1-Strong Buy rating.
*We have toured the York plant before and found that little has changed. As
always, the facility was humming with production. But, it
also appeared to be bursting at the seams in terms of capacity.
*Managers we spoke with conveyed to us a high morale about current business.
But, even more noticeable was an excitement about
the plant expansion which is scheduled to open in 2003.
*While HDI continuously strives to improve margins, we believe sig. growth
could come from this new plant. Based on prior
expansions, HDI's gross margins could benefit over 100 basis points.


Providian Fin'l Corp(PVN) 2 - Buy B. Harting, .212.526.3007
The slide continues..... (A)
Price: $39.06 EPS 2000 N/A $2.73 N/A N/A
52 Wk Ra: $67 - 36 EPS 2001 $3.25E $3.20E $3.28E 12.2
Mkt Cap: $11.6B EPS 2002 $3.91E $3.49E $3.99E 11.2
FY: 12/31 Price Target $58 $40
Rank 2 2
*We are lowering our FY01 and FY02 EPS estimates to reflect the revised
earnings guidance for FY01 and lower long term growth
rate going forward. Despite the fact that the shares were down 20%, we do
not view this weakness as a buying opportunity and
continue to maintain our cautious stance on the name given the uncertainty
of earnings going forward.
*We are lowering our FY01 earnings estimate to $3.20 from $3.25 and our FY02
estimate to $3.49 from $3.91. We are lowering our
price target to $40, which represents 11.5x our FY02 estimate.
*The company provided guidance for net credit loss performance in 4Q01 and
FY02. The company noted that it expects the net credit
loss rate to be in the 10.45% -10.75% range for 4Q01 with credit loss rates
running at or above that range in FY02.
*We believe the biggest reason for the change in guidance is the lack of
success in generating profitable loan growth in the Prime &
Super Prime segments and higher than expected credit costs.

Albertson's, Inc(ABS) 3 - Market Perform M. Adler, .212.526.7146
Reports 2Q01 EPS of $0.45, beating our estimate by $0.02
Price: $34.70 EPS 2001 N/A $2.08 N/A N/A
52 Wk Ra: $37 - 20 EPS 2002 $1.81E $1.93E $1.85E 18.0
Mkt Cap: $14.2B EPS 2003 N/A N/A $2.13E N/A
FY: 1/31 Price Target N/A N/A
Rank 3 3
*The tone of the ABS analyst meeting was upbeat, although the company
provided very little new information to justify its currently
high valuation (2001 P/E of 18.0). ABS is trading higher than both Safeway
(2001 P/E of 17.3x) and Kroger (2001 P/E of 17.9x),
both of which have far stronger and clearer earnings prospects, as well as
better long-term competitive positioning. We are therefore
maintaining our 3-Market Perform rating.
*ABS reported 2Q01 EPS of $0.45, $0.02 ahead of our estimates and $0.01
ahead of consensus. Sales were in line with our estimates,
but the operating margin deteriorated by only 42 bp versus the 58 bp we had
*We have raised our 3Q01 estimate from $0.37 to $0.44, and our FY02
estimates from $1.81 to $1.93. For the full year, we are
forecasting that sales grow 3.6% to $38.073 billion, while we now expect the
operating margins to deteriorate 27 bp versus our
previous estimate for a 54 bp deterioration.

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 5th 2001.pdf