<<MF May 11th, 2001.pdf<<
Good Friday Morning - Comments From The
Economic data so far this quarter has been extremely ambiguous. On the one
hand, the employment figures released last Friday were soft, with net hiring
shrinking for the second consecutive month and the unemployment rate rising
to 4.5%. On the other hand, consumer sentiment has improved, and the April
retail sales figures were stronger than anticipated. As we have mentioned,
this mixed data has increased the odds the Federal Reserve will ease by only
25bp next Tuesday. At this stage, Lehman Brothers' economists still think
the odds favor a 50bp cut, given the underlying weakness in the economy,
particularly in high-tech and manufacturing, together with the abysmal
The change in the perception on the strength of the economy can be seen in
the higher interest rates posted below.
The 30-year US T-Bond yield is 5.87%.
The 10-year yield is 5.47%.
The 5-year is trading at 4.98%.
Spot crude oil is trading at $28.62 p/b.
Natural Gas - Henry Hub - is trading at $4.27 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.
Entertainment S. Linde, .212.526.4009
Upfront Preview: CBS and FOX Appear Well Positioned
*With the WGA negotiations all but settled, the Entertainment industry will
now turn its sights to the upfront selling cycle, which
commences May 14 with presentations from the major Networks lasting through
*The current ad market has created fears of a weak upfront market. Ad buyers
must be careful not to look at the current economic
environment as a proxy for the future. Based on this premise, there may be
upside to our 5%-10% estimated decline in upfront sales
(based on 65%-70% inventory sales with low to mid single digit price
*In our opinion, VIAB and FOX are the best positioned for this year's
upfront given that improved ratings in the key 18-49
demographic combined with our expectation for modest CPM increases will
boost unit pricing.
Reebok Intl Ltd(RBK) 2 - Buy R. Drbul, .212.526.4714
Preview of Investor Day on May 21 (C)
OLD NEW STREET P/E
Price: $27.20 EPS 2000 N/A $1.41 N/A N/A
52 Wk Ra: $32 - 12 EPS 2001 $1.77E $1.77E $1.73E 15.4
Mkt Cap: $1.7B EPS 2002 $2.05E $2.05E $2.00E 13.3
FY: 12/31 Price Target $36 $36
Rank 2 2
*On May 21, Reebok will be hosting an investor day in Canton, Massachusetts.
We believe that this event should be highly
informative as investors will have the opportunity to view the crucial back
to school product line as well as hear several key
*We expect to hear presentations from David Perdue, a Reebok veteran and
recently appointed president of the Reebok brand, Jay
Margolis, president of the specialty division (Rockport, Ralph Lauren
footwear and Greg Norman brands) and Terry Pillow,
President of the Rockport brand, among others.
*We will also be looking for additional information on the company's new NFL
licensing deal, which could generate $200 million and
be accretive by $0.05 in 2002 (included in our 2002 estimate).
*We believe that an inflection point in the stock could be the 3Q01, where
we are estimating $60 million of NFL revenues. This
incremental revenue should aid in 12% overall revenue growth for RBK.
StorageNetworks, Inc(STOR) 2 - Buy H. Blount, .212.526.9128
Meeting with Management--Demand Remains Robust (C)
OLD NEW STREET P/E
Price: $16.8 EPS 2000 N/A -$1.37 N/A N/A
52 Wk Ra: $154 - 7 EPS 2001 -$1.31E -$1.31E -$1.32E N/A
Mkt Cap: $1.6B EPS 2002 -$1.10E -$1.10E -$0.87E N/A
FY: 12/31 Price Target $28 $28
Rank 2 2
*Our meeting with senior management yesterday confirmed that demand for
STOR's services remains strong; we believe that the stock
is still undervalued at current levels despite its recent rise.
*STOR's management stated that the pipeline of activity for new customers
continues to be robust and that its current customer base is
*We believe that STOR is benefiting from the increasing complexity of
managing enterprise data storage environments.
*We believe STOR is funded to profitability.
*The company's maturing sales force should lead to continued productivity
gains. In addition, STOR is shifting its revenue mix to
higher margin services.
*We believe that the stock overhang stemming from the lock-up expiration is
largely behind us.
*Despite its recent run, the stock is still trading at a discount to its
McDonald's Corp(MCD) 1 - Strong Buy M. Speiser, .212.526.3255
Reducing '01 EPS not on Ops/adj share base & int expense
OLD NEW STREET P/E
Price: $27.2 EPS 2000 N/A $1.46 N/A N/A
52 Wk Ra: $40 - 25 EPS 2001 $1.50E $1.46E $1.50E 18.6
Mkt Cap: $37.6B EPS 2002 $1.71E $1.66E $1.69E 16.4
FY: 12/31 Price Target $38 $38
Rank 1 1
*Our lower EPS view is not based on weakening Operations, but is due to
adjustments to our share base & interest expense estimates.
So we do not expect much impact on the stock. Lowering already-weak EPS
expectations will likely prove to be beneficial for the
stock. Maintain Op outlook
*Reducing our '01 EPS view from $1.50 to $1.46, now flat vs. a yr-ago & the
low on the Street
*Our revision reflects adjustments to our share base & interest expense
estimates. With $1.2b in buyback targeted in '01 & $452m
done in 1Q, our previous forecast reflected more aggressive repo; mgmt is
adamant that '01 buyback would not pass $1.2b. Also,
higher debt levels will not likely be offset by weak currencies as much as
*Imp'rtantly our Op outlook albeit weak is unchanged
*Maintain 1-rating. We're now confident that our '01 EPS view will not be
lowered anymore. With the shares at a 4+ year valuation
low & the bar on expectations very low, the risk/reward is favorable
IBM Corp(IBM) 1 - Strong Buy G. Elling, .212.526.3823
Innovate and Integrate: Gerstner Gives Vision for Future
OLD NEW STREET P/E
Price: $116.98 EPS 2000 N/A $4.44 N/A N/A
52 Wk Ra: $135 - 80 EPS 2001 $4.90E $4.90E $4.85E 23.9
Mkt Cap: $212.0B EPS 2002 $5.45E $5.45E $5.47E 21.5
FY: 12/31 Price Target $160 $160
Rank 1 1
*Yesterday IBM hosted its annual meeting for security analysts in New York.
While there were no major surprises, CEO Lou Gerstner
did outline some trends for the future, and stressed the importance of
innovation and integration (i.e., Technology and Services) for
the company going forward.
*Gerstner emphasized the importance of services as a driving force in all IT
spending, including hardware and software. Gerstner also
cited the need for continued technological development as a way to avoid
price wars driven by commoditization of products.
*Gerstner stressed IBM's commitment to high single-digit revenue growth and
double-digit earnings growth in the future. Gerstner
indicated that the company would not simply grow revenue at any cost, but
was instead focused on EPS and cash flow driven by an
*We maintain our current estimates and reiterate our 1-Strong Buy rating on
IT Consulting & Computer Services K. Keirstead, .212.526.0442
Gerstner's View of IT Services
*Yesterdays comments from the CEO Lou Gerstner and the head of IBM Global
Services Doug Elix represent positive long-term
statements about the IT services industry. IBM is positioning itself as a
services-lead company and claimed that the services business
is now the most important segment of the technology sector. The meeting
supports our positive view of EDS while the comments
about the consulting and systems integration market make us incrementally
more worried about Sapient and Computer Sciences.
Electronic Arts(ERTS) 3 - Market Perform F. Kantor, .212.526.5562
Upside to Q; Outlook Bullish; Wish Stock Were Cheaper (C)
OLD NEW STREET P/E
Price: $54.52 EPS 2000 N/A $0.00 N/A N/A
52 Wk Ra: $62 - 25 EPS 2001 $0.84E $0.89E $0.68E 61.3
Mkt Cap: $7.6B EPS 2002 N/A $1.71E $1.74E 31.9
FY: 3/31 Price Target N/A N/A
Rank 3 3
*There is no doubt in our minds that ERTS is one of the premier publishers
in the industry. The co's solid performance in a difficult Q
makes it easy to believe that when hurdles are absent (i.e. an abundance of
game consoles) they can outperform. That said, we wish
the stock were not so pricey. Due to valuation, we reiterate our market
*1Q01 operating EPS of $(0.09) vs $0.08 were better than our $(0.15) est.
Most of the upside came from EA Core, where in line revs
were bolstered by lower op. exp. At EA.com, slightly higher revs were offset
by lower margins.
*We are raising our consol. FY02E to $0.89 from $0.84 and are initiating
quarterly EPS of $(0.13), $(0.05), $0.87 and $0.20. We are
also initiating a consol. FY03E EPS of $1.71.
*Adjusting for EA.com, ERTS currently trades at a forward P/E of 35.3x -
higher than hist averages. Though ERTS is on the cusp of
solid growth, this valuation indicates that it is currently in the stock.
IDEC Pharmaceuticals(IDPH) 2 - Buy M. Wood, .212.526.4035
IDEC: Response on Zevalin to the FDA by mid-July. (A,C)
OLD NEW STREET P/E
Price: $54.19 EPS 2000 N/A $0.30 N/A N/A
52 Wk Ra: $78 - 19 EPS 2001 $0.52E $0.52E $0.55E 104.2
Mkt Cap: $6.9B EPS 2002 $0.67E $0.67E $0.84E 80.9
FY: 12/31 Price Target $49 $49
Rank 2 2
*IDEC expects to answer the FDA's questions on Zevalin by mid-July. Our
assumption for launch in 1Q02 remains intact.
*The FDA has issued a Complete Review Letter on Zevalin, asking IDEC to
address a number of clinical and CMC issues.
*The FDA is not requiring additional Phase III trials or further imaging on
patients for the BLA submission.
*The timing for Zevalin at the FDA remains a question. There are currently
no completion requirements for the FDA, although we are
clearly encouraged by IDEC's ability to respond quickly.
*We continue to expect launch in 1Q02. We maintain our sales projections for
Zevalin in 2002 and 2003 at $70.9 million and $119.8
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
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- MF May 11th, 2001.pdf