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LEHMAN BROTHERS M O R N I N G M E E T I N G LATE EDITION MONDAY, JANUARY 3, 2000 E Indicates new note in Late Edition IMPACT CALLS American Home Prods(AHP) $39 1-Buy Enough is Enough--AHP Raised to 1-Buy
FOCUS STOCKS Health Care Serv.-Outsourc/Distr Lehman Weekly Persp.-How Low? Pt I] L.Marsh
Health Care Serv.-Outsourc/Distr Lehman Weekly Persp.-How Low? Pt I TeleTech Hlds(TTEC) $33 11/16 1-Buy
E J. Kessler Initiate Coverage of Customer Care Leader with 1-Buy, I/II
COMPANY/INDUSTRY UPDATES VA Linux(LNUX) $206
Initiating Coverage with a 2-Outperform, P. 1/3 OTHER NOTES FROM TODAY - US Health Care Services - Outsourcing/Distribution - How Low? - Pt II] L.Marsh Health Care Services - Outsourcing/Distribution - How Low? - Pt II TeleTech Hlds(TTEC) $33 11/16 1-Buy E J. Kessler
Initiate Coverage of Customer Care Leader, Part II
VA Linux(LNUX) $206 5/8 2-Outperform (A,C) E
G. Elling Initiating Coverage with a 2-Outperform, P. 3/3 VA Linux.(LNUX) $206 5/8 2-Outperform
(A,C) E G. Elling Initiating Coverage with a 2-Outperform, P. 2/3 NOTES. M O R N I N G M E E T I N G LATE EDITION MONDAY, JANUARY 3, 2000 - 2 - IMPACT CALLS American Home Prods(AHP) 1-Buy A. Butler, 526-4410 Enough is Enough--AHP Raised to 1-Buy OLD NEW STREET P/E Price: 52 Wk Ra: 70-37 EPS 2000 2.01 2.01 1.96 20X Mkt Cap: 53.48 Bil. EPS 2001 N/A N/A 2.22 N/A FY: DEC Price Target 55 55
Rank 3 1 We are raising our rating on AHP shares to 1-BUY; the stock has fallen by over 25% since the announcement to merge with
Warner-Lambert, and does not reflect existing fundamentals. AHP currently trades under 20 times 2000 estimated EPS of $2.01, a 25% discount to the drug group. The earnings growth rate of American Home is approximately 11%, much lower than the 16% pharmaceutical revenue growth
rate, the result of a compression of the agrochemical business. While we do not
believe the merger with Warner Lambert will be completed, AHP will likely clearly remain an acquisition/merger candidate and as such should receive some merger premium. We calculate the maximum diet-drug liability at under $10 billion, and the minimum as the amount currently reserved by the
company, or $4.75 billion. Fair value giving AHP shares a group multiple of
26X 2000 EPS is $52 per share. If we assume maximum liability of $10 billion for diet drugs (an additional $5 billion), fair value would be $48. We therefore feel the current risk reward opportunity
favors investment in AHP shares. FOCUS STOCKS Health Care Serv.-Outsourc/Distr Lehman Weekly Persp.-How Low? Pt I]
L.Marsh, (212)526-5315 Health Care Serv.-Outsourc/Distr Lehman Weekly Persp.-How Low? Pt I We are providing some review of last week in our OUTSOURCING-DISTRIBUTION/ supply mgmt. universe: How Low Can You Go? characterizes the
completion of one of the poorest stock price performance years of which are aware in our broad covered group down 42% in 1999. Of encouragement, our distr. index up 7.2% last week, on back of calming Y2K news, vs. the S & P 500, up 0.7% and the Russell 2000, up 4.6%. The
out-performance vs. the S&P500 breaks a string of six consecutive weeks the S&P500 beat our covered index: index now down 15% in Q4. Biggest winner was HSIC, up 23.1%. DKWD showed largest drop,
down 7.1%. In last weeks actions, we highlight our Y2K note from 12/30/99; and also provide more detail from BBC 10-K this morning; We also highlight several lessons learned from 1999. TeleTech Hlds(TTEC) 1-Buy J. Kessler, (212)526-5162 Initiate Coverage of Customer Care Leader with 1-Buy, I/II OLD NEW STREET P/E Price:
52 Wk Ra: 34 - 5 EPS 2000 N/A 0.58E 0.55E 58.0x Mkt Cap: 2.13 Bil. EPS 2001 N/A .83E .79E N/A FY: DEC Price Target 42 Rank 9 1
We are initiating coverage of TeleTech Holdings with a 1-Buy rating and a price target of $42. TTEC is a leading provider of inbound customer services and leading-edge technology platforms with a full menu of web-based and traditional media to service both new and old commerce.. MORNING MEETING FLASH - 3 -
Like few other customer care companies, TeleTech has developed an internet-based help platform (Cybercare) which services customers in
multiple media, in an interactive format, and will become the core platform for the company.
TeleTech has had an impressive run in garnering new, marquee customers for its inbound business, including Ford, American Express, Bell Atlantic, GTE and Blockbuster.com. The resulting long-term,
mostly-exclusive contracts provide strong visibility (85% of 00 revenues are already accounted for). TTEC is still rebuilding its margins, and we see the potential for upside surprises in earnings as greater than at any time in the last three years. The market
may begin to value the company based on what should be a long-term 40-45% EPS growth rate and the new e-commerce customer care services. COMPAN VA Linux(LNUX) 2-Outperform G. Elling, (212)526-3823 Initiating Coverage with a 2-Outperform, P. 1/3 OLD NEW STREET P/E Price: $206 5/8
EPS 2000 N/A -1.60 N/A N/A 52 Wk Ra: 320-161 EPS 2001 N/A -0. N/A N/A Mkt Cap: 8.2 Bil EPS N/A N/A N/A N/A N/A FY: JUL Price Target
230 Rank N 2 VA Linux Systems is unique as a full-service Linux
systems vendor. The company designs workstations and servers optimized for Linux, using the Intel architecture. Also, it provides software, consulting services, and support. The company has assembled a renowned group of Linux experts as employees and on the board of directors. In addition, its impressive list of customers includes major names in the Internet and in scientific clustering. The Linux O/S is rapidly gaining prominence and is heralded for its reliability, scalability, stability, and low cost. According to IDC, in 1998, Linux held a
17% market share of all new server shipments, and another survey showed Linux being utilized in about 1/3 of all web sites. Although VA is an early stage company, it appears well positioned to exploit opportunities within the rapidly growing Linux market. Revenues have grown more
than six-fold in two years, and we expect the company to turn profitable in 2H of CY01. We are initiating coverage with a 2 Outperform rating and a price target of $230/sh.
REPORTS SENT TO PRINT LAST NIGH Disclosure Legend:
ALehman 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 stocks 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. |
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