Message-ID: <9394500.1075840152013.JavaMail.evans@thyme> Date: Mon, 23 Apr 2001 17:06:00 -0700 (PDT) From: morris@enron.com To: larimore@enron.com, jordan.larimore@lehman.com Subject: The Morning Market Call - Monday April 23rd, 2001. Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: Morris, David C. X-To: Larimore, Jordan R. X-cc: X-bcc: X-Folder: \jskillin\Inbox X-Origin: SKILLING-J X-FileName: jskillin.pst <> Good Monday Morning - Comments From The Local Guys! At the end of 2000, a new Federal Insider-Trading Rule (Rule 10b5-1) was 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. We, the Local Guys would like our readers to know of this new rule change because of its significant advantages over the prior insider trading rules. 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. The 30-year US T-Bond yield is 5.72%. The 10-year yield is 5.18%. The 5-year is trading at 4.69%. Spot crude oil is trading at $27.81 p/b. Natural Gas - Henry Hub - is trading at $5.12 p/mcf. AD Time: The Local Guys! - Who We Are. - The partnership of Jordan Larimore and David Morris manages investments for individual and corporate clients. - We help investors achieve their personal and professional portfolio goals. - We manage individual portfolios.. - We use Outside Money Managers. - We utilize the top Mutual Fund Families. - We help with portfolio re-diversification - taking investors out of highly concentrated equity situations and rediversifying those dollars. - We also work on Corporate Stock Option Plans and 144 Restricted Stock issues. - We welcome hearing from you! Call us toll-free at 1-800-227-4537. Lehman's Research. IMPACT CALLS Oracle Corp(ORCL) 2 - Buy N. Herman, .212.526.6093 Near-term WorriesDowngrade Oracle to a 2 (C) OLD NEW STREET P/E Price: $19.75 EPS 2000 N/A $0.34 N/A N/A 52 Wk Ra: $46 - 13 EPS 2001 $0.44E $0.44E $0.44E 44.9 Mkt Cap: $118.8B EPS 2002 $0.55E $0.49E $0.52E 40.3 FY: 5/31 Price Target $50 $50 Rank 1 2 *Although its still early in the quarter, we worry that what is typically a seasonally strong quarter for Oracle could prove to be unusually weak given the tough U.S. macroeconomic environment and potentially weakening conditions in international markets. *Apparently, more Sun servers are sold running Oracle software than anything else. Weak results and guidance from Sun only serve to compound our near-term worries. *We believe that IBM with DB2 is exerting some price pressure on Oracle and is gaining momentum with Morgan Stanley and Goldman Sachs being two high profile firms making big commitments to DB2. *With its rise over the last two weeks, shares of Oracle are trading at a significant premium to the historic range both on a PE and revenue multiple basis despite near-term uncertainty. Lowering earnings estimates and rating to 2-Buy. INITIATING COVERAGE Agere Systems(AGRA) 3 - Market Perform A. Chanda, .415.274.5370 A Communications Component Giant is Unleashed (C) OLD NEW STREET P/E Price: $7.57 EPS 2000 N/A $0.32 N/A N/A 52 Wk Ra: $8 - 4 EPS 2001 N/A -$0.05E N/A N/A Mkt Cap: $12.4B EPS 2002 N/A -$0.07E N/A N/A FY: 12/31 Price Target N/A N/A Rank N 3 *We are initiating coverage of Agere, a communications components gorilla. We note that the valuation is low but given slowdowns in capital spending and inventories and margin contraction we would prefer to stay on the sidelines until fundamentals improve. *We are establishing C01 revenues of $4.1 billion (-20% y/y) and C02 revenues of $4.4 billion (up 8% y/y) and EPS of a loss of $0.15 and a loss of $0.02. *Agere had 31% of revenues in optoelectronics and 69% in ICs in Dec:00. The vast majority of optoelectronics is in active components and modules. In ICs, roughly 10% is in storage, 10% in wireless terminals and infrastructure, 12% in wireless LAN, 37% in access (SLICs, modems) and 31% in communications. Agere tends to sell most IC products in the form of ASICs manufactured internally. Agere's only large customer is Lucent which was 17% of revenues in December. FOCUS STOCKS Exodus Communications(EXDS) 2 - Buy H. Blount, .212.526.9128 If the Decks are Cleared -- Buy (C) OLD NEW STREET P/E Price: $9.75 EPS 2000 N/A -$0.54 N/A N/A 52 Wk Ra: $69 - 6 EPS 2001 -$0.89E -$0.89E -$0.85E N/A Mkt Cap: $5.2B EPS 2002 -$0.51E -$0.51E $0.13E N/A FY: 12/31 Price Target $20 $20 Rank 2 2 *We believe Exodus will have an opportunity to "Clear the Decks" of bad news during 1Q01 earnings. If so, we believe investors should begin to aggressively buy the stock. *If EXDS reports weak bookings and brings down 2001 revenue guidance to street consensus, it will "clear the decks" of further bad news. Under this scenario, we would suggest investors become more aggressive in purchasing the stock, despite lack of future visibility. *The primary scenario where we would remain cautious would be if EXDS reports weak bookings and does not lower 2001 revenue guidance. *Based on three different valuation analysis, we believe EXDS has a favorable 2 to 1 reward/risk ratio from current levels. Paper & Forest Products P. Ruschmeier, .212.526.9898 Rally in Wood Product Markets Picking Up Steam *As the rally in wood products picks up steam, we are reiterating our favorable ratings on the following wood product producers: LPX, GP, WY, BCC, TIN, BOW, and to a lesser degree, IP. *The rally in wood product markets picked up steam last week as cash prices for plywood, OSB, and lumber jumped 9%, 9%, and 3%, respectively. The rally is supported by 1) seasonal strength, 2) sharply lower interest rates, 3) firm demand, 4) low pipeline inventories, and 5) GP's plans to permanently close 1.4% of North American plywood capacity. In addition, the Department of Commerce will likely rule today on whether to investigate countervailing duties. *If the current rally in wood product markets continues, the risk to our estimates will be on the upside. Tellabs, Inc(TLAB) 1 - Strong Buy S. Levy, .212.526.2499 Snake Bit (C) OLD NEW STREET P/E Price: $35.58 EPS 2000 N/A $1.67 N/A N/A 52 Wk Ra: $77 - 31 EPS 2001 $1.75E $1.55E $1.72E 23.0 Mkt Cap: $14.8B EPS 2002 N/A $2.00E $2.58E 17.8 FY: 12/31 Price Target $50 $50 Rank 1 1 *Our confidence in healthy SONET sales continues unabated and we believe the current slowdown in sales of the TITAN 5500 solely reflects service provider spending uncertainty and not a fundamental architectural shift or any slackening in demand for high bandwidth services. *Actual March quarter sales of $772 mil met our revised projection of $772 mil with final EPS of $0.29 in line with our expectations. *We now project sales and EPS including g/w amort of $3.6 billion and $1.55 in 2001 and $4.439 billion and $2.00 in 2002. Our new estimates also project 2001 TITAN 5500 sales of $1.95 bil and $2.145 bil in 2002 (10% growth), TITAN 6500 and 6100 system of $175 mil in 2001 and $340 mil in 2002, and continue to expect initial sales of both in 2Q. *We est. a minimal 3-5 year sales CAGR of 20% for Tellabs and believe the shares should trade at 25x our new CY02 est, or $50 by the end of the year. We reiterate our 1 Strong Buy and $50 price target. QUALCOMM Inc(QCOM) 1 - Strong Buy T. Luke, .212.526.4993 Previewing Solid 2Q01, Maintain 1 Buy (A,C) OLD NEW STREET P/E Price: $66.33 EPS 2000 N/A $1.05 N/A N/A 52 Wk Ra: $120 - 43 EPS 2001 $1.27E $1.22E $1.26E 54.4 Mkt Cap: $49.8B EPS 2002 N/A N/A $1.68E N/A FY: 9/30 Price Target $120 $120 Rank 1 1 *We look for wireless innovator QCOM to deliver solid 2Q01 results in line with expectations on Wednesday 4/25. Expect management commentary to be upbeat highlighting strength of QCOM's l-term positioning. We reit our 1 Buy rating *Expect QCOM to comfortably meet our consensus EPS est of $0.29 with sales of approx $690-700M helped by solid chip shipments of around 16M units *Expect positive mgmt tone underlining: 1X upgrade cycle, steady expansion of global CDMA markets & potential for QoQ uptick in chip shipments throughout FY01 despite handset inventory worries *Ahead of results, finetuning our ests for June & Sept Q's to reflect more conservative assumptions for a) R&D investment b) QoQ uptick in chip shipments. FY01 moves to $1.22 from $1.27, CY01 is $1.21. *Catalysts remain more 3G licensing deals (NOK, ALA, Siemens), China orders, 1X rollout. QCOM continues to extend leadership in wireless chip design & remains a top pick. Target is $120 COMPANY/INDUSTRY UPDATES Commodity Chemicals S. Vasnetsov, .212.526.3212 Instead of flowers, spring brings drought in chemical *On our recent research trip, we found that US chemical industry continues to struggle with slow demand in April, contrary to typically robust seasonal demand pattern. We expect recovery in chemical demand only in late 2001, followed by improvement in cash margins in early 2002. *In the winter of 2000-01, the US commodity chemicals saw the worst operating conditions since 1985. *The hope was that conditions will improve in the spring 2001, as less expensive oil and gas, coupled with more robust seasonal demand, will help to improve both sales volume and cash margins. *So far, this widely expected improvement has NOT happen, as our research trip uncovered. We expect that on upcoming 1Q conference calls companies will offer more cautious outlook for 2Q'01 and for the entire year. 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 = 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 percentage points). 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 Inc. 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 April 23rd 2001.pdf