 |
||||||
|
 |
|
|
CREDIT SUISSE FIRST BOSTON CORPORATION January 3, 2000 1 FIRST EDITION (AS OF JANUARY 3 2000) OPINION/TARGET PRICE/ESTIMATE CHANGE Tommy Hilfiger Corporation (TOM, $23.69, BUY) Target (12 Months): $32 Dennis Rosenberg, CFA 1 212 325 4743 [email protected] Reducing Estimates;
We reduced our fiscal 2000 (March) earnings estimate to $2.47 from $2.52 and our fiscal 2001 estimate to $2.85 from $3.00.
Retail sales were below plan for both mens sportswear and missy sportswear in the December quarter. Mens jeans sales increased about 10% (on plan), but momentum slowed.
We believe markdown allowances to clear excess retail inventories will hurt the gross margin in the second half. Our reduced expectation of 15% earnings growth in fiscal 2001 should be
driven by continued strength in junior jeans, childrenswear, outlet stores, and licensing, as well as the launches of Tommy junior sportswear and Hilfiger dress-up.
Tommys underleveraged balance sheet and strong cash flow could support an equity shrink. We lowered our rating to Buy from Strong Buy and our 12-month price target to $32 from $45.
Annual EPS 3/01E 3/00E 2.47 3/99A 1.99 3 OPINION/ESTIMATE CHANGE
Landstar Systems (LSTR, $42.50, STRONG BUY) Target (12 Months): Low $60s Gary Yablon 1 212 325 3035 [email protected] Let The Transformation BeginLSTR Upgraded To Strong Buy.
We are raising our year 2000 estimate for LSTR System $0.20 to $4.70 from $4.50, and are changing our recommendation on LSTR stock to a Strong Buy from a Buy. LSTR should see an
acceleration in its revenues resulting from better than expected performance in all of its business segments, led by the strength in the freight environment, consolidation within the trucking industry, and increased Intranet use. However, the key driver to our rating change is increased conviction that LSTR will benefit from a degree
of re-branding that should take place as investors recognize the high return and cash flow characteristics of the company.
It is our belief that valuing LSTR as a truckload pure play is not a completely accurate portrayal. We believe the company is better categorized as a hybrid between a non-asset based transportation
provider (its historical returns on invested capital are more reflective of that) and a truckload carrier. We are not
arguing that LSTR is exactly like the premier non asset based transportation providers but the stocks valuation is also far lower. In our opinion, the company deserves a hybrid valuation. For 1999,
we. January 3, 2000 2 expect the spread between ROIC and WACC to total 15 p.p. and for 2000, we estimate that this spread will be as wide as 17 p.p. We derive a hybrid P/E of 13x when we take 80% of the year 2000 P/E average of the truckload universe
and 20% of the unweighted average 2000 P/E multiple for CHRW, EUSA, EXPD, CRCL, and AEIC and discount this by 15% (since LSTR has exposure to truckload supply/demand issues that others dont.) This implies a P/E multiple expansion of 50% and a stock price in the low $60s. Annual EPS 12/01E 12/00E $4.70 12/99E $3.98 OPINION CHANGE/INDUSTRY COMMENT
Energy/Exploration and Production - Exploring the New Millennium Phillip Z. Pace, CFA 1 713 220 6721 [email protected] E&P stocks provide a compelling risk/reward based on historical parameters and we recommend investors take advantage of the markets
indifference toward the sector to add to positions. Based on our 2000E, the group currently trades at 5.3 times EBITDA versus a 5.9 to 8.6 range historically. Macro conditions for producers
remain healthy with peak commodity prices and attractive drilling costs. We believe that reversion to the mean valuation provides 25% upside potential with reversion to peak upside of 70%. In our view, the market is sending the E&P sector a message in the form of low equity valuations that
capital discipline needs to improve. In this environment, we believe that share repurchases, which are being considered by many producers, provide an attractive alternative to acquisitions and drilling. Since lowering many ratings in September (see Guarded Optimism), we have taken advantage of the weakness in the sector to raise numerous opinions. We are adding one more name to the mix by upgrading Pogo Producing (PPP) to Buy from Hold. We believe that the unique positioning at PPP provides the fuel to drive reserve value net of debt per share.
Our top picks among the larger companies include Anadarko, Apache, Burlington Resources and Union Pacific. Among the smaller companies, our top picks are Noble Affiliates, Ocean Energy, Santa Fe Snyder, Spinnaker Exploration and Swift Energy. ESTIMATE CHANGES AXA Financial Inc. (AXF, $34, BUY) Target (12 Months): $45 Caitlin F. Long 1 212 325 2165 [email protected] Raising Estimates On Strong Asset Gathering In 4Q We raise our 1999 and 2000 earnings estimates for AXA Financial based on our
expectation that earnings at DLJ and Alliance Capital will top current Street forecasts. Our new forecasts assume that AXA Financial grew its total assets under management in 1999 by nearly
25% to $435 billion, and by 10% in the fourth quarter alone. We expect rapid asset growth at Alliance, based on its strong 4Q performance and broadening distribution, and we also expect
solid earnings at DLJ from underwriting and M&A.. January 3, 2000
3
We believe this asset growth pace puts AXA Financial in the league of the top players in the financial services industry, most of which trade 3-4 multiple points higher than AXA Financial on 2000
earnings. It also explains why AXA Financial was the best-performing life insurance stock in 1999a trend we
expect will continue if the current mix of strong securities markets and narrow stock performance continues.
Our 2000 estimate of $2.60 assumes a conservative 5% asset growth rate, with capital redeployment and expense management also reflected in our 15% EPS growth forecast. For comparison, we estimate that AXA Financials EPS grew by 37% in 1999 on 25% asset growtheven though the company bought back stock only in the latter half of the year. Our fourth quarter estimate assumes
$120 million of share repurchases, which is consistent with our belief that the company was very active during the quarter. We expect this trend to continue into 2000, and
forecast an ROE expansion to 17% in 2000 from 14.5% in 1998. We maintain our Buy rating on AXA Financials stock. Our $45 price target implies 32% upside potential.
Annual EPS 12/00E 12/99E 2.25 12/98A 1.64
AFLAC Incorporated (AFL, $47.19, BUY) Target (12 Months): $55 Caitlin F. Long 1 212 325 2165 [email protected] Raising Estimates On Expectation Of Strong Fourth Quarter We raise our earnings estimates for AFLAC to reflect higher sales forecasts for the fourth quarter and to
reflect strength in the yen. We raise our 2000 estimate by $0.05 to $2.40 and raise our fourth quarter 1999 estimate by $0.01 to
$0.54. These estimates imply an updated yen/dollar exchange rate forecast of 105. Based on unusually strong fourth quarter sales, AFLAC should top its 12-13% sales growth target for
1999 in its U.S. business. We expect AFLAC to meet or beat its 1999 target of 15% sales growth in Japan. We believe the upward estimate revision trend at AFLAC will continue into 2000.
Based on new product introductions, the company should achieve its 10-15% sales growth targets for 2000 and 2001.
Government trial balloons about raising the cap for out-of-pocket medical expenses in Japan could, if implemented, lead to yet higher growth in sales of AFLACs popular RiderMAX product.
While uncertainty remains regarding the potential for an additional policyholder protection fund assessment in Japan (resulting from the bailout of the failed Toho Mutual), we see two recent favorable events. For the first time ever, the Japanese governments deal to bail out Toho allowed the company to
break guarantees in its policies to pay certain minimum crediting rates to its customers. We view this, together with recent improvement in Moodys ratings outlook for several Japanese life companies, as signs that the risk of further bankrupticies in Japan may be declining. In turn, this should reduce the risk of more assessments for the protection fund (beyond any potential assessment for
the Toho situation) on companies operating in Japan. Annual EPS 12/00E
12/99E 2.01. January 3, 2000 4 12/98A 1.56 INDUSTRY COMMENT Transportation/Trucking - Truckload Industry
Gary Yablon 1 212 325 3035 [email protected]
A very high correlation of 92% exists between changes in stock prices for the truckload stocks and the spread between return on invested capital and the weighted average cost of capital. However, the correlation between historical EPS and stock price has yields only 35% for the truckload carriers.
With the exception of a few, the truckload carriers have historically earned in excess of their cost of capital, and should continue to do so as long as the economy stays in reasonable shape. However, on the whole, we believe the markets expectations for the truckload stocks is still very low;
priced into todays stock prices is very little in the form of future growth expectations. Select carriers should show growth that is much higher than what the market is expecting our VBA analysis shows that a number of the truckload stocks are undervalued. The market has a relatively low bar for most of the truckload companies (MICAPs are generally very
low) this makes it easier for the TL carriers to outpace expectations. Out of this group, our favorite stocks are SWFT, CVTI and LSTR. All are rated Strong Buy. LSTR was
upgraded today. All VDF models available upon request either in hardcopy or on excel spreadsheets.. December 30, 1999
Copyright 2000 Credit Suisse First Boston Corporation 2000. All rights reserved This report is provided to you solely for informational purposes and does not constitute an offer or solicitation of an
offer, or any advice or recommendation, to purchase any securities or other financial instruments and may not be construed as such. This report may not be reproduced or redistributed to any other person,
in whole or in part, without the prior written consent of the distributor listed below. The information set forth herein has been obtained or derived from sources believed by Credit Suisse First Boston Corporation and its affiliates (CSFB or the firm) to be reliable, but CSFB does not make any representation or warranty, express or implied, as to its accuracy or completeness. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied is made regarding future performance. Opinions
and estimates may be changed without notice. The firm, or one or more of its partners or employees, from time to time may have long or short positions in, or buy and sell and make markets in, any of the
securities discussed herein. The firm may underwrite or provide investment banking, credit and other financial services to any company or issuer of securities or financial instruments referred to herein.
If CSFB makes a market in any security, there can be no assurance that CSFB will continue to do so. Additional information is available upon request. CSFB may have issued other reports that
are inconsistent with, and reach different conclusions from, the information presented herein. Those reports reflect the different
assumptions, views and analytical methods of the analysts who prepared them. This report is being distributed in the United States by CSFB, and in Canada by Credit Suisse First Boston Securities Canada,
Inc. (CSFBSC) with CSFB as mailing/delivery agent. In jurisdictions where CSFB is not registered or licensed to trade in securities, any trade will be made only in accordance with applicable securities legislation which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements.
CSFBSC has approved the distribution of this memorandum. Any U.S. customer wishing to effect a transaction in any security should do so only by contacting a representative at Credit Suisse First Boston
Corporation, Eleven Madison Avenue, New York, NY 10010 (212) 325-2000. 0103ams.doc 5 LATE EDITION (AS OF DECEMBER 30 1999) PM CALL/INTRA DAY: NO NOTES TODAY |
|
|
| [... psyops...] [...the truth...] [...or is it...] [...maybe...] [...maybe not...] |