Message-ID: <10571757.1075840162294.JavaMail.evans@thyme> Date: Fri, 8 Jun 2001 11:15:19 -0700 (PDT) From: david.morris@lehman.com To: ordan.larimore@lehman.com Subject: The Morning Market Call - Friday June 8th, 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: ordan.Larimore@lehman.com X-cc: X-bcc: X-Folder: \jskillin\Inbox X-Origin: SKILLING-J X-FileName: jskillin.pst <> Good Friday Morning - Comments From The Local Guys! The following are highlights from Lehman Brothers economists Stephen D. Slifer and Ethan S. Harris's weekly comments: "The dichotomy between the near-term and medium-term economic outlook continues to build. Recent data for capital goods spending and the job market point to a further deepening of the growth recession. At the same time, the forces for eventual recovery continue to gather: major tax rebates are now a done deal, the Fed continues to ease aggressively, the stock market has begun to recover, and consumer confidence has begun to turn upward. We remain confident that the economy will recover sharply during the second half and return to solid trend growth in 2002. However, given the considerable downward momentum in the economy, the recovery may not be soon enough to deliver the solid 3% GDP growth we are forecasting in 3Q. Our current forecast has just one more 25 bp rate cut from the Fed. However, the odds are growing that the Fed will need to implement a 50 bp cut or two 25 bp cuts." The 30-year US T-Bond yield is 5.72%. The 10-year note yield is 5.33%. The 5-year is trading at 4.87%. Spot crude oil is trading at $28.04 p/b. Natural Gas - Henry Hub - is trading at $3.87 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 Washington Mutual(WM) 1 - Strong Buy B. Harting, .212.526.3007 Refi Volumes Fall, Fleet Mortgage Transaction Closed (A) OLD NEW STREET P/E Price: $36.2 EPS 2000 N/A $2.35 N/A N/A 52 Wk Ra: $37 - 18 EPS 2001 $3.17E $3.17E $3.17E 11.4 Mkt Cap: $31.1B EPS 2002 $3.58E $3.77E $3.48E 9.6 FY: 12/31 Price Target $43 $45 Rank 1 1 *We reiterate our 1-Strong Buy rating on WaMu in light of recent developments, including a continued decline in refinance activity and the closing of the Fleet Mortgage acquisition. *On June 1st, the company closed its acquisition of Fleet Mortgage. The transaction has propelled WaMu to the #1 rank in mortgage servicing and #2 rank in loan originations, based on 2000 volumes. *Despite a small uptick last week, refinance activity continues to decline. We believe that ARM lenders like WaMu have weathered the boom well, and are positioned for additional balance sheet growing forward. *The lag effect on ARMs pegged to the COFI index will continue to drive margin expansion for the next several quarters, as asset yields remain at high levels. *We expect significant mortgage banking gains when the company reports 2Q01 results, as the company has been selling 30 year fixed product. Medtronic Inc(MDT) 1 - Strong Buy D. Gruber, .212.526.1924 Raising the Price Target to $52 (from $47) OLD NEW STREET P/E Price: $44.75 EPS 2001 N/A $1.05 N/A N/A 52 Wk Ra: $62 - 40 EPS 2002 $1.21E $1.21E $1.21E 37.0 Mkt Cap: $54.1B EPS 2003 $1.40E $1.40E $1.41E 32.0 FY: 4/30 Price Target $47 $47 Rank 1 1 *Following its May 23 FY4Q01 conference call, we reduced our FY02 expectations and our price target to a more conservative $47. We are now raising our target to $52 a figure more in-line with the average historical (forward twelve-month) S&P premium of 50% (range: 30-80%). Further analysis suggests that a rebound in the rate of ICD market growth remains highly plausible by the 1Q02 . Minimed acquisition adds another sustainable growth platform to cardiac rhythm management and neuro/spinal and increases the attainability of 15% sales growth. Other blockbuster opportunities warrant a higher premium than implied in our existing price target. *Longer-term growth prospects for ICDs becoming less of a concern. *Acquisition of Minimed strategically meshes with Medtronic and will help to ensure 15%+ near-term sales growth. Diabetes is oftentimes a precedent for heart disease. INITIATING COVERAGE Satellite Communications W. Kidd, .212.526.4849 DBS: Good Value Despite Decelerating Growth *We believe the DBS space as a whole is presently undervalued despite decelerating growth. Consistent with that view, we have initiated coverage on Hughes Electronics (GMH) with a 1-Strong Buy, EchoStar (DISH) with a 2-Buy and Pegasus (PGTV) with a 2-Buy. *We see a marketplace that still affords considerable room for growth. That said, near-term growth is likely weak and a risk. Only Hughes has yet to acknowledge 2Q01 growth issues, a risk. Long-term, the future is still bright in spite of cable upgrades as satellites offer a very compelling pay television product. *Pending consolidation could make for good timing. While we are hopeful that clarity alone could serve as a catalyst, we believe the DBS sector will fundamentally benefit from either a Hughes-EchoStar or Hughes-Sky Global pairing. Sirius Satellite Radio(SIRI) 1 - Strong Buy W. Kidd, .212.526.4849 At the Cusp of a New Era in Radio (A,C) OLD NEW STREET P/E Price: $13.85 EPS 2000 N/A -$4.72 N/A N/A 52 Wk Ra: $60 - 6.12 EPS 2001 N/A -$6.51E -$7.23E N/A Mkt Cap: $1.3B EPS 2002 N/A -$7.02E -$7.36E N/A FY: 12/31 Price Target N/A $57 Rank N 1 *Initiating coverage of Sirius Satellite Radio with a 1-Strong Buy rating and a $57 mid-year 2002 target. *The opportunity is difficult to match. Satellite radio benefits from both a sizable addressable market, consisting of approximately 180 million vehicles and 100 million households, and an efficient, low-cost satellite broadcast network. *We look positively on the industry's transition to consumer reality from concept. We believe the transition could help a skeptical market become believers. *Only a few steps left. In a relatively short period of time, Sirius has successfully deployed its satellite network, cemented programming relationships, forged strategic relationships with automakers as well as inked distribution alliances with retailers. The most important item still outstanding is finalizing its receiver chipset and building production radios. We believe the company is sufficiently on track with both its discrete and ASIC designs that at least one of the two will be ready by December. XM Satellite Radio(XMSR) 1 - Strong Buy W. Kidd, .212.526.4849 Radio Version 3.0 in Stores Soon (C) OLD NEW STREET P/E Price: $15.90 EPS 2000 N/A -$1.38 N/A N/A 52 Wk Ra: $47 - 4 EPS 2001 N/A -$5.19E -$5.40E N/A Mkt Cap: $1.6B EPS 2002 N/A -$5.99E -$6.70E N/A FY: 12/31 Price Target N/A $40 Rank N 1 *We rate XM Satellite Radio 1-Strong Buy with a year-end 2001 price target of $40, representing significant appreciation potential from current levels. XM is one of two FCC licensed providers of satellite radio, slated to begin offering service at the end of this summer. The company will provide 100 stations of CD-quality music and talk with coast-to-coast coverage for a monthly subscription fee of $10. We feel that strong demand exists for the service and are excited about its prospects. *A late summer or early fall service start gets XM to market first, ahead of competitor Sirius by several months, and a national advertising campaign, budgeted at $110 million for the first twelve months, should kick start the service launch nicely, not to mention drum up additional investor interest. *XM's strong economic model throws off normalized EBITDA margins of 52.7% in the out years, demonstrating the leverage possible under the satellite broadcast model. Hughes Electronics(GMH) 1 - Strong Buy W. Kidd, .212.526.4849 DBS Leader on Auction Block. We Bid $33 OLD NEW STREET P/E Price: $23.18 EPS 2000 N/A -$0.43 N/A N/A 52 Wk Ra: $38.00 - 17.50 EPS 2001 N/A -$0.44E N/A N/A Mkt Cap: $32.2B EPS 2002 N/A -$0.35E $0.00E N/A FY: 12/31 Price Target N/A $33 Rank N 1 *Initiating coverage with a 1-Strong Buy rating and $33 year-end 2001 price target. Although our recommendation does not rely on acquisition to evidence intrinsic value in Hughes, we believe a positive resolution to the matter could serve as a share catalyst if it provides the clarity and closure that the market seems to now desire. *We are concerned about weak 2Q growth due to the economy and slow rural take-up. Our forecast of 275k 2Q01 net adds (vs. 275k-350k guidance) and our 1.3mn 2001 net adds is well below guidance of 1.5mn to 1.7mn net adds. Therefore, near-term growth is still a concern and risk. *We believe Hughes is undervalued and a quality asset in the satellite communications arena with leading enterprise and consumer service businesses. EchoStar Communications(DISH) 2 - Buy W. Kidd, .212.526.4849 A Dominant Operator with Few Weaknesses (C) OLD NEW STREET P/E Price: $30.50 EPS 2000 N/A -$1.32 N/A N/A 52 Wk Ra: $56.44 - 20.50 EPS 2001 N/A -$0.48E -$0.66E N/A Mkt Cap: $16.0B EPS 2002 N/A $0.43E $0.51E 70.9 FY: 12/31 Price Target N/A $40 Rank N 2 *Initiating coverage with a 2-Buy rating and a year-end 2001 price target of $40. *Operationally, the company is executing well on all cylinders. EchoStar is taking market share from DIRECTV, acquiring incrementally more valuable subs while building monthly ARPU and controlling churn. It's not surprising with such operational discipline that EchoStar has evolved into an investor favorite. *Although a sector issue, we are a little concerned that 2Q01 growth and quite possibly 3Q01 growth might fall well below 1Q levels. The risk is perhaps least meaningful to EchoStar since management already voiced concerns about the quarter. Big picture, EchoStar is still going to produce the best growth in the sector, in our view. Gilat Satellite Networks(GILTF) 2 - Buy W. Kidd, .212.526.4849 Possible Turnaround on the Horizon (A,C) OLD NEW STREET P/E Price: $12.51 EPS 2000 N/A $2.06 N/A N/A 52 Wk Ra: $93.38 - 9.36 EPS 2001 N/A -$1.56E -$0.75E N/A Mkt Cap: $321.5MM EPS 2002 N/A $1.96E $1.65E 6.4 FY: 12/31 Price Target N/A $16.5 Rank N 2 *We are initiating coverage of Gilat with a 2-Buy rating and $16.50 price target. Our Buy rating is driven by our belief that Gilat seems able to rebuild its core VSAT earnings engine back to near historical levels, making the present price level attractive. *We are going to dare to say that we have already hit bottom. In the last six to nine months, Gilats operating stability and the confidence investors once placed in the company have eroded. We believe in successive quarters, starting with 2Q02, Gilat will be able to increasingly demonstrate that its business is in fact profitable and stable. *Long-term, we find it hard to imagine how Gilat cannot play a meaningful role in the evolution of satellite broadband, since it effectively created the enterprise and consumer equipment technology, along with Hughes, that makes it all possible. *We are concerned about StarBand's ability to build traction. However, at the present Gilat price level, faith in StarBand is not a requirement for purchase. Loral Space & Communications(LOR) 1 - Strong Buy W. Kidd, .212.526.4849 SatCom Sector Stalwart Poised for Comeback (A) OLD NEW STREET P/E Price: $2.94 EPS 2000 N/A -$1.44 N/A N/A 52 Wk Ra: $8.50 - 1.03 EPS 2001 N/A -$0.81E -$0.90E N/A Mkt Cap: $1.0B EPS 2002 N/A -$0.51E -$0.67E N/A FY: 12/31 Price Target $15 $6 Rank 1 1 *We are assuming coverage of Loral with a 1-Strong Buy rating and a $6.00 year-end 2001 price target. *Loral stands significantly undervalued relative to its FSS peer group. We believe Loral should not trade at a nominal discount to the sector, when it possesses superior cash flow growth and solid assets. *Easing liquidity concerns is an important near-term step. Management plans to divest between $100 million and $200 million in non-core assets to lighten the load. Although there are risks, like ChinaSat-8, our model indicates that Loral should be able to successfully manage through a tight 2001. *Sector consolidation could make FSS assets like Loral's more scarce. Loral should at least be an indirect beneficiary. Orbital Sciences(ORB) 3 - Market Perform W. Kidd, .212.526.4849 The Time May Soon Be Upon Us OLD NEW STREET P/E Price: $3.50 EPS 2000 N/A -$4.98 N/A N/A 52 Wk Ra: $15.50 - 3.45 EPS 2001 N/A -$1.06E -$0.81E N/A Mkt Cap: $137.9MM EPS 2002 N/A $0.31E $0.60E 11.3 FY: 12/31 Price Target N/A N/A Rank N 3 *We are initiating coverage of Orbital Sciences with a 3-Market Perform rating. Although the company appears undervalued, we would like to see the company make greater progress in its turnaround before getting aggressive. Given recent disappointments, we advise potential investors to remain on the sidelines at least until 2Q results confirm or disprove our thesis that Orbital Sciences is on track to build value through improvements in its core satellite manufacturing and launch services businesses. *Orbital has successfully divested all of its non-core business lines to reduce debt and facilitate its refocus on its core satellite infrastructure business. *We expect the company to show meaningful signs of a recovery in 2Q01. However, a fairly robust recovery might still be a year away. Pegasus Communications(PGTV) 2 - Buy W. Kidd, .212.526.4849 Maturation is the Next Step in the Life Cycle (C) OLD NEW STREET P/E Price: $22.06 EPS 2000 N/A -$4.97 N/A N/A 52 Wk Ra: $54.50 - 18.25 EPS 2001 N/A -$5.95E -$5.57E N/A Mkt Cap: $1.5B EPS 2002 N/A -$4.64E -$4.73E N/A FY: 12/31 Price Target N/A $32 Rank N 2 *We are initiaing coverage with a 2-Buy Rating and a $32 year-end 2001 target. We believe positive elimination of the litigation risk associated with DIRECTV is required for our target to be realized. The present lack of clarity surrounding the issue restrains us from more aggressively recommending Pegasus shares in spite of the seeming potential. *Historically, Pegasus has outpaced its peers because of satellite TV's strength in rural markets. However, a relatively more mature rural market and a weaker economic model, relative to Hughes and EchoStar, have caused the company to recently switch its focus to preserving its bottom line in lieu of growth. *New DirecPC-based broadband model should be a near-term plus. *Survivability disagreement with DIRECTV could go to trial in early 2002. If Hughes is bought, we believe the new owner could delay the trial to negotiate, leading possibly to a more favorable stance. PanAmSat(SPOT) 3 - Market Perform W. Kidd, .212.526.4849 Relative Valuation Warrants Pause (C) OLD NEW STREET P/E Price: $38.96 EPS 2000 N/A $0.84 N/A N/A 52 Wk Ra: $52 - 25 EPS 2001 N/A $0.20E $0.20E 194.8 Mkt Cap: $5.8B EPS 2002 N/A $0.35E $0.34E 111.3 FY: 12/31 Price Target N/A N/A Rank N 3 *Initiating coverage of PanAmSat with a 3-Market Perform rating. Although PanAmSat has excellent assets, we find its current valuation, which rests on the high end of the range, hard to justify with its current growth trajectory. *The core business remains impressive. Growth at PanAmSat, although low relative to the industry, is far from absent, and comes in the form of both new satellite launches, which include PAS-10 and Galaxy IIIC in 2001, and increasing utilization rates aboard the existing satellite fleet. PAS-10 was launched in 2Q01 and Galaxy IIIC will be launched in 3Q01, bringing PanAmSats total fleet to 23 satellites from 21. *We see a de-emphasis of Net-36 as prudent. ViaSat Inc(VSAT) 2 - Buy W. Kidd, .212.526.4849 Prudent Broadband (C) OLD NEW STREET P/E Price: $18.54 EPS 2001 N/A $0.66 N/A N/A 52 Wk Ra: $34 - 9.37 EPS 2002 N/A $0.66E N/A 28.1 Mkt Cap: $424.6MM EPS 2003 N/A $0.82E N/A 22.6 FY: 3/31 Price Target N/A $22 Rank N 2 *We are initiating coverage of ViaSat with a 2-Buy rating and a $22 year-end 2001 target. Although the company's near-term earnings do not produce an overly compelling valuation on quantitative metrics alone, the company's long-term potential and strategic initiatives warrant investor attention and support. *ViaSat has become a primary supplier to a number of leading satellite broadband projects, ensuring the company's prominent role in the development of a mass market, last-mile satellite broadband solution. *Hughes and Gilat have been tied to their own broadband endeavors, leaving ViaSat to sign-up everyone else. *The company's in-house engineering talent appears to be paying off in a significant way. We believe a large potential defense contract award could come as early as calendar 3Q01, potentially serving as an important share catalyst if we are right. FOCUS STOCKS Intel Corp(INTC) 3 - Market Perform D. Niles, .415.274.5252 Slightly Below Midpoint of Prior Guidance Due To Comm (C) OLD NEW STREET P/E Price: $31.14 EPS 2000 N/A $1.65 N/A N/A 52 Wk Ra: $76 - 22 EPS 2001 $0.55E $0.55E $0.54E 56.6 Mkt Cap: $217.0B EPS 2002 $0.70E $0.70E $0.79E 44.5 FY: 12/31 Price Target N/A N/A Rank 3 3 *INTC did what was expected which is lower revs to slightly below the midpoint of the old range but state that they expected a seasonally stronger 2nd half. *On a positive note, INTC said processors and flash were in line with expectations but that comm ICs were below plan. They also believe that processor inventory at customers are at normal levels. *On the neg side, INTC lowered GMs to slightly below the midpt of the old guidance but lower exp. will offset that. Amort is higher due to acquisitions. *The main question is how customers (such as HP two days ago) can be lowering forecasts for PC demand and talking about increasing weakness in Asia and Europe with INTC not seeing it. The answer is that Intel is one step removed from the end customer. We are curious as to what guidance in mid-July looks like. *The stock will be up tomorrow. The question is where is it by mid-summer if current global trends continue. Du Pont(DD) 3 - Market Perform S. Vasnetsov, .212.526.3212 DD Pharma Sale: Finally, it's drug-free, at a good price! OLD NEW STREET P/E Price: $46.34 EPS 2000 N/A $2.73 N/A N/A 52 Wk Ra: $51 - 38 EPS 2001 $1.95E $1.95E $1.99E 23.8 Mkt Cap: $48.4B EPS 2002 N/A $2.55E $2.56E 18.2 FY: 12/31 Price Target $45 $45 Rank 3 3 *DuPont announced the sale of its Pharma unit (ex. cozaar/hyzaar) to Bristol Myers for $7.8 B in cash. We expect DD's stock to be UP by ~4.5%, given the rich price and 10 cents accretion on our FY2002 estimate of $2.55/share. *We believe DuPont is getting a higher than expected price, particularly since the deal excludes cozaar. Companies expect deal to close in 4Q01. *We believe the deal is accretive by 9 c/share on our FY2002 est. of $2.55. We're not changing our FY 2001 EPS estimates until the timing of the sale and the pace of the stock buyback is clear. *DuPont will use the proceeds from the Pharma sale to buy back stock and pay down debt. The company has also announced a new $2.0 B stock repurchase plan, to be implemented when the current $2.5 B buy back is finished. *We expect more details from DuPont's conf. call @ 10:30 am (Eastern time) this morning. The conf. call dial in # is 973-633-1010 (Reservation # 12439). Cendant Corp(CD) 1 - Strong Buy J. Kessler, .212.526.5162 In Talks To Acquire Galileo; Reit Strong Buy, $30 Target (A) OLD NEW STREET P/E Price: $18.48 EPS 2000 N/A $0.91 N/A N/A 52 Wk Ra: $19 - 8 EPS 2001 $1.00E $1.00E $1.01E 18.5 Mkt Cap: $15.6B EPS 2002 $1.12E $1.12E $1.13E 16.5 FY: 12/31 Price Target $30 $30 Rank 1 1 *Yesterday, Cendant ended widespread speculation by announcing that it is in talks to acquire computer reservation service provider Galileo in a transaction that, if consummated, could be significantly accretive to Cendant's earnings in 2001 and 2002. *Rationale supporting the acquisition include: (1) CD's ability to sell GLC solutions into its large corporate customer base; (2) enhance reservation capabilities of existing brands; (3) leverage CD's investment in WizCom and travel portal; (4) GLC's excellent cash flow characteristics; (5) attractive valuation ('01 P/E 10.5-11x, '01 EV/EBITDA 5.5-6x). *Issues that Cendant will have to address include: (1) GLC has struggled to grow its core business by more than mid single digit rates; and (2) GLC appears behind the curve with Internet reservation technology and has had its U.S. share eroded somewhat by Travelocity and Expedia. *While there are some risks, we believe that a GLC acquisition would be a positive for CD. We reiterate our 1-Strong Buy rating and $30 price target. DTE Energy(DTE) 1 - Strong Buy D. Ford, .212.526.0836 A Great Value OLD NEW STREET P/E Price: $43.7 EPS 2000 N/A $3.32 N/A N/A 52 Wk Ra: $45 - 30 EPS 2001 $3.54E $3.54E $3.55E 12.3 Mkt Cap: $6.2B EPS 2002 $4.06E $4.26E $4.00E 10.3 FY: 12/31 Price Target $51 $51 Rank 1 1 *DTE's analyst conference went well and we reiterate our Strong Buy rating and $51 target. The company provided more thorough earnings guidance and detail on the unregulated businesses. *We believe DTE's plan for raising EPS growth from 6% to a top-tier 8% is convincing. Non-reg income could grow from $130M in '01 to $350M in '05. *Key unregulated stakes are in coal (including synfuels), generation development, midstream gas supply, and energy technology. *Recent closing of MCN merger provides strategic gas pipeline and storage assets. Synergies are likely to be better than forecasted. *We are raising our 2002E $0.20/share to $4.26 which reflects better overall comfort in drivers and excludes goodwill. *DTE is a good stock for the current choppy environment. We see 22% return on upside to our $51 target on 12x our 2002E and a 4.7% yield. COMPANY/INDUSTRY UPDATES Handspring Inc(HAND) 2 - Buy J. To, .415.274.5242 Preannounces Q4 (June); Revs down 50% q/q (C) OLD NEW STREET P/E Price: $8.90 EPS 2000 N/A -$0.59 N/A N/A 52 Wk Ra: $99 - 9 EPS 2001 -$0.34E -$0.55E -$0.30E N/A Mkt Cap: $1.3B EPS 2002 -$0.13E -$0.42E -$0.09E N/A FY: 6/30 Price Target $18 $18 Rank 2 2 *Handspring preannounced Q4 (June) revenues would be down 50% q/q versus their prior forecast of up 5%. This was much worse than we had expected when we lowered our revenue estimates down 10% on May 17th. *There were three factors contributing to the large shortfall in revenue. First, the general economic slowdown in the US has caused channel sell through growth of handheld computing devices to drop from 100+% y/y in January to 12% y/y growth in April and May. Second, Palm's pricing actions and new product introductions had a negative impact on Handspring sales during the quarter. Third, retail channel inventory levels for Handspring have increased from the low end of the 8-12 week recommended range to 12 weeks for all devices. *We are lowering our Q4 (June) rev est from $110m to $60m and EPS from ($0.12) to ($0.32). FY01 revs go from $420 to $370 and EPS from ($0.34) to ($0.55). FY02 rev est go from $556m to $360m and EPS from ($0.13) to ($0.42). Bristol-Myers Squibb(BMY) 2 - Buy C. Butler, .212.526.4410 Bristol Buys DuPont Pharma for $7.8 Billion OLD NEW STREET P/E Price: $56.6 EPS 2000 N/A $2.36 N/A N/A 52 Wk Ra: $75 - 48 EPS 2001 $2.41E $2.41E $2.41E 23.5 Mkt Cap: $113.0MM EPS 2002 $2.69E $2.67E $2.69E 21.2 FY: 12/31 Price Target $75 $75 Rank 2 2 *Yesterday, BMY entered into a definitive agreement with DuPont to buy their pharmaceutical business for $7.8 billion in cash. *This acquisition appears expensive to us at this price. According to guidance, the deal is dilutive for BMY in 2002 and accretive in 2003 and beyond. It is particularly expensive considering the deal does not include the crown jewel of DuPont's portfolio, namely the hypertension agents Cozaar/Hyzaar. *Moreover, this move does nothing to address potential near term revenue pressures for BMY. Generic entry of Glucophage is imminent and the switch strategy has been less than stellar. *There is a reasonable fit with the respective product franchises (HIV, cardiovascular). Thus, we believe a small sales synergy may be gained. Plus, we feel a cost synergy can be realized, beginning in 2002 and peaking in 2003. *Based on a lack of near term revenue inflexions, we maintain our 2 BUY rating and price target of $75. Willamette Industries(WLL) 3 - Market Perform P. Ruschmeier, .212.526.9898 Probability of WY/WLL Combo is Rising OLD NEW STREET P/E Price: $48.78 EPS 2000 N/A $3.16 N/A N/A 52 Wk Ra: $51 - 26 EPS 2001 $2.35E $2.35E $2.41E 20.8 Mkt Cap: $5.4B EPS 2002 $4.50E $4.50E $3.53E 10.8 FY: 12/31 Price Target $55 $55 Rank 3 3 *Although we maintain a Market Perform rating on shares of WLL for fundamental investors, we believe it is increasingly likely that WLL will seek value enhancing initiatives which include negotiating with WY. *Yesterday (6/7), WY attempted to elect 3 board members to WLL's 9 member board. Although it may take another 2 weeks for the official count to be tallied, it appears increasingly likely that WY will win the vote. *In addition, given WLL chairman Bill Swindells comments, it is evident he acknowledges that shareholders seek some type of value-enhancing transaction. We believe a combo with WY will maximize value for WLL shareholders. *Ultimately, we believe stock will enter into the current cash offer. Thus, WY shares may be range bound as arbs are likely to short WY upon the introduction of stock to the deal. Wireless & Internet Infrastructure T. Luke, .212.526.4993 2001 Guide to Comm Networks & Equip *Back by popular demand, the Communications Equipment team is publishing Lehman Brothers' 2001 Guide to Communications Networks and Equipment. *This poster shows once again how pieces of today's communications puzzle fit together and builds on the strong investor interest in prior versions. *In this edition, we have listed our estimates, developed with leading consultancies and company data, of the worldwide market sizes, growth rates, and market shares by vendors for 40 communications equipment markets. *It reflects some technological advances made during 2000 and highlights some key new network segments including data-enabled wireless network and all-optical transport network. *We believe this poster can be a useful resource for investors. For copies, please call your Lehman Bors salesperson. 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 June 8th 2001.pdf