Message-ID: <21565157.1075852651615.JavaMail.evans@thyme> Date: Mon, 16 Jul 2001 13:02:48 -0700 (PDT) From: david.morris@lehman.com To: larimore@enron.com, jordan.larimore@lehman.com Subject: The Morning Market Call - Monday July 16th, 2001. Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: "Morris, David C." @ENRON X-To: Larimore, Jordan R. X-cc: X-bcc: X-Folder: \JSKILLIN (Non-Privileged)\Deleted Items X-Origin: Skilling-J X-FileName: JSKILLIN (Non-Privileged).pst <> Good Monday Morning - Comments From The Local Guys! Very late edition. According to Jeff Applegate, Lehman Brothers' strategist, the prevailing bear story on the market is that the market is now lower than it was six months ago, after the initial Federal Reserve interest rate cut. The implication is that something must be wrong. Well, one thing that we do know is that earnings have been declining for the last six months. However, according to Jeff, that does not imply that the Fed is powerless. It only means that memories are short. In 1981, the same situation prevailed. The market was down 6%, six months after the initial interest rate cuts from the Fed. and again in 1990, the market was down 14% after the same period. However, Jeff does point out that on average, the S&P 500 was invariably up 18% after the initial Fed. easing. Given that Jeff's target by year end is only 1450 on the S&P 500, the jury is still out. If the S&P reached that level, it would only be 8% above the January 3rd level when the Fed. started their easing process....and that would be at the low end of the historical range. The 30-year US T-Bond yield is 5.87%. The 10-year is trading at 5.17%. The 5-year is trading at 4.71%. Spot crude oil is trading at $26.06 p/b. Natural Gas - Henry Hub - is trading at $3.06 p/mcf. AD Time: 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 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's Research IMPACT CALLS Health Care Distribution & Technology L. Marsh, .212.526.5315 Lehman EPS Preview-SUMMER INSIGHTS *This morning we a providing a June Quarter EPS Preview for our covered healthcare Distribution & Technology names - "SUMMER INSIGHTS", h'lighting three areas of questions to which will get some insights with June quarter results: a) impact on recent chain drug store rev. trends on wholesalers; b) update on status of AAS/BBC merger, and c) justification for current valuation (in line with longer-term trend-line relative P/E). *With this preview, we are raising our price target on shares of DKWD after recent capital raise, going from $37 to $45. We are maintaining our FY02 EPS est. of $2.45, but are adjusting down our previously aggressive Q4 est. *We highlight ant. solid results for most of our group, and look for 19% y/y drug volume gains, slightly below March #s. 1st to report, OMI - 7/18 St. Jude Medical(STJ) 2 - Buy D. Gruber, .212.526.1924 Raising Price Target To $72 OLD NEW STREET P/E Price: $64.9 EPS 2000 N/A $1.82 N/A N/A 52 Wk Ra: $66 - 36 EPS 2001 $2.18E $2.21E $2.17E 29.4 Mkt Cap: $5.7B EPS 2002 $2.55E $2.60E $2.52E 25.0 FY: 12/31 Price Target $67 $72 Rank 2 2 *We are raising our price target on St. Jude based on (a) continued strong fundamentals and (b) the potential for upward earnings revisions in the 2H01 and 2002E. St. Jude continues to execute as planned. It is expected to become debt free in late-02 (if not earlier). Cash flow remains strong. Our revised price target of $72 represents a 27.5x of CY02 of $2.60. *Adding $0.02 to our 2001 EPS estimate and $0.05 to our 2002 EPS estimate from elimination of escrow payments. Final FASB rule change could add an additional $0.17 per year to EPS. *Incorporation of DAO algorithms into Integrity AFX solidifies #2 position in pacemakers. Approval 3 5 months ahead of expectations adds another $0.01 to CY01 EPS estimate. *Raising price target to $72 INITIATING COVERAGE Juniper Networks(JNPR) 3 - Market Perform T. Luke, .212.526.4993 Assuming Coverage; Awaiting Better Visibility; Mkt Perf. (C) OLD NEW STREET P/E Price: $28.47 EPS 2000 N/A $0.53 N/A N/A 52 Wk Ra: $245 - 24 EPS 2001 N/A $0.51E $0.53E 55.8 Mkt Cap: $9.1B EPS 2002 N/A $0.53E $0.71E 53.7 FY: 12/31 Price Target N/A $32 Rank N 3 *We are assuming coverage of core IP routing leader Juniper Networks. While we are encouraged by JNPR's impressive comp positioning as a strong tech leader in key l-term growth market, we see few n-term catalysts for shares w/ visibility limited amidst current telecom cap ex slowdown. Rating 3 Market Perform *We believe JNPR remains a core routing tech leader with a world class product line, over 500 service provider custs, and a strong, experienced mgmt team operating with high gross margins & good cash flow in a mkt with high barriers to entry. *On July 12, JNPR reported 2Q01 results in line w/ recently reduced guidance. Rev of $202M & EPS of $0.09. GM was 60.2%. Book to Bill>1. *Our CY01 & CY02 rev & EPS ests are $944M & $1B & $0.51 & $0.53, respectively. Against a backdrop of weaker carrier spending, flattish sales over the next several q's, and heightened competitive focus f/ CSCO we see few catalysts for shares beyond $29-$32, or 55-60x CY02 ests. COMPANY/INDUSTRY UPDATES Hudson City Bancorp(HCBK) 2 - Buy B. Harting, .212.526.3007 Buybacks Drive Upside Surprise (C) OLD NEW STREET P/E Price: $23.69 EPS 2000 N/A $1.04 N/A N/A 52 Wk Ra: $23 - 16 EPS 2001 $1.21E $1.21E $1.23E 19.6 Mkt Cap: $2.4B EPS 2002 $1.33E $1.33E $1.36E 17.8 FY: 12/31 Price Target $23 $25 Rank 2 2 *Hudson City reported $0.31 for 2Q01, $0.01 ahead of consensus estimates. We reiterate our 2-Buy rating and our earnings estimates, at $1.21 for FY 2001 and $1.33 for FY 2002. We also raise our target price from $23 to $25 per share. *HCBK reported $0.31, $0.01 ahead of consensus estimates. Operating results were in-line with expectations; EPS benefited from higher share repurchase activity than expected. Net interest margin remained flat sequentially, at 2.81%. *The quarter was highlighted by balance sheet growth. Due to increases in both the loan and securities portfolio, HCBK now has total assets in excess of $10 billion. *Management continues to manage its expense base. Efficiency ratio for the quarter was 29.8%, down from 30.9% in the year ago quarter. *HCBK has repurchased nearly $200 million in common stock in 1H01. At quarter-end, the bank's equity to assets ratio remained in excess of 14%. 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 = Buy (expected to outperform the market by 15 or more percentage points); 2=Outperform (expected to outperform the market by 5-15 percentage points); 3=Neutral (expected to perform in line with the market, plus or minus 5 percentage points); 4=Underperform (expected to underperform the market by 5-15 percentage points); 5=Sell (expected to underperform the market by 15 or more percentage points); V=Venture (return over multiyear time frame consistent with venture capital; should only be held in a well-diversified portfolio). 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. ------------------------------------------------------------------------------ This message is intended only for the personal and confidential use of the designated recipient(s) named above. If you are not the intended recipient of this message you are hereby notified that any review, dissemination, distribution or copying of this message is strictly prohibited. This communication is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product, an official confirmation of any transaction, or as an official statement of Lehman Brothers. Email transmission cannot be guaranteed to be secure or error-free. Therefore, we do not represent that this information is complete or accurate and it should not be relied upon as such. All information is subject to change without notice. - MF July 16th 2001.pdf