STRATEGY COMMENTARY (T. Galvin) - 1999 SCOREBOARD AND 2000
INVESTMENT OUTLOOK - Looking to the new
year, we are making wholesale changes and turning over more than half of the names on the DLJ Focus List. The 2000 DLJ Focus List
includes 9 veterans: C, CL, WCOM, MSFT, NKE,
PG, QWST, TLAB and YNR. There are 11 newcomers, including AOL, AAPL,
CMCSK, COST, CVS, EMC, HD, INF, MER, WFG and YHOO. We are also introducing two new portfolios called the DLJ Growth
List and the DLJ Value List in
order to provide DLJ recommendations to fit a variety of style portfolios. Both lists contain 12 Buy or
Top Pick rated names. We list the holdings in our handout this morning.
UPCOMING ECONOMIC DATA RELEASES (R.
Hokenson) - This is a very full week for economic data, with the most important
release being the Employment report on Friday.
ECONOMIC COMMENTARY (R. Hokenson) - The outlook for 2000 is very favorable. The equity
market will continue to benefit
from strong, productivity-led economic growth. Low inflation will keep the Fed from changing monetary policy to a negative for the
stock market. Our forecast calls for real GDP growth
of 4.0% and CPI inflation of only 1.2% in 2000.
Ratings Changes:
HOSPITAL INDUSTRY - Recent events appear to have reversed psychology on the group, and the stocks are showing signs of
strength.
We believe fundamentals are sound for non-urban hospitals (and well-positioned urban hospitals), and valuations are
generally compelling. We are upgrading HMA from Buy to Top Pick, and we are upgrading Triad (TRIH),
LifePoint (LPNT), and
Province (PRHC) to Buy. [HMA, LPNT, TRIH, PRHC]
HEALTH MANAGEMENT ASSOCIATES I (HMA)# CP-$13.375 -CAP:$3.4B- (J. Hindelong) --"TP" - Upgrading from Buy to
Top Picks. Target price in
high-teens. HMA remains the "gold standard" in the hospital industry. See comment above.
TRIAD HOSPITALS (TRIH)* CP-$15.125 -CAP:$0.5B- (J. Hindelong) --"BUY"--Upgrading from "MP" to Buy.
TRIH is a hybrid
model of non-urban, small city and large city facilities. Target price in high-teens.
LIFEPOINT HOSPITALS (LPNT)* CP-$11.813 -CAP:$0.4B- (J. Hindelong) --"BUY"--Upgrading from
"MP" to Buy. LPNT is a
pure play non-urban model with strong assets. Target price in mid-teens.
PROVINCE HEALTHCARE CO COM (PRHC)* CP-$19.000 -CAP:$0.3B- (J. Hindelong) --"BUY"--Upgrading from
"MP" to Buy.
PRHC is a pure play non-urban model. Target price in mid-20s.
KEY POINTS:
Company Updates:
MERRILL LYNCH & CO INC (MER)# CP-$83.500 -CAP:$30.6B- (J. Solotar)
--"BUY"--$120.00 TP--We recently met with James
Gorman, Chief Marketing Officer, a newly created position. He will focus on strengthening the overall brand name--a new marketing
campaign begins this month; Merrill is bringing back a modernized version of the famed bull.
RECKSON ASSOCIATED REALTY CORP (RA)+ CP-$20.500 -CAP:$0.8B- (L. Raiman) --"BUY"--$25.50 TP-- (CONVERT
AVAIL.) --
560 acre Pilgrim State land deal going up for re-bid by the State of New York RA had won the bid but the deal had not
closed. The deal was a key part (20%) of RAs value-added pipeline. RA is in the process of
evaluating its position with respect to the
issue, including re-bidding on the property.
CBRL GROUP (CBRL)* CP-$9.703 -CAP:$0.6B- (J. Meyer) --"BUY"--$22.00 TP-- The CBRL turnaround story continues to take
longer than expected. We remain at the low end of estimates for F2Q00 and F3Q00. The concept, in our view, is strong and fixable.
ARROW ELECTRONICS (ARW) CP-$25.375 -CAP:$2.4B- (M. Hassenberg)
--"BUY"--$35.00 TP--Raising target price from $32 to
$35 and fine tuning 99E from 1.47 to 1.45. The shares continue to substantially underperform, but the market is ignoring numerous
positive factors that
lead us to reiterate our Buy. Among them, the shares are sharply undervalued.
MBNA CORP (KRB)# CP-$27.250 -CAP:$21.9B- (M. Orenbuch) --"BUY"--$37.00 TP--Portfolio purchases are a key channel with
consistent economics. (Recently, there has been some confusion regarding account acquisition costs.) We strongly reiterate our Buy.
Industry Updates:
ELECTRONICS (M. Hassenberg) - December quarter
results should support substantially higher valuations for three companies -Amphenol,
Harman and SCI Systems [APH, HAR, SCI]. Handout contains extensive overviews and updates for each.
TECH NOTES -- DLJ Tech Team --
Comments include ARW (see handout) and Media Metrix. MMXI: Weekly e-commerce data
reflects expected holiday usage patterns. As expected, the data reflected a drop in usage during Christmas. Over the next few weeks,
we look for usage to start to rebound from the holiday lull, especially for sites like eBay and Priceline, which are entering their
seasonally strong March quarters.
OILFIELD SERVICES AND EQUIPMENT (A. Sanger) --
Group outperforms the market for 3rd straight week. We see substantial
upside for the next 12 months as the earnings recovery unfolds. Our favorite stocks are [BHI, SLB, WFT, FLC, RIG, NBR]
OIL AND GAS EXPLORATION
AND PRODUCTION (D. Bradshaw) --"O"-- Appreciation of stellar fundamentals and
overwhelmingly positive company-specifics to get share prices moving.
NATURAL GAS (C. Launer) --"O"--Outlook 2000:
EPS growing, prices strong, M&A continues. All of these factors support out
Outperform rating on the industry. We also provide our 4Q99 review and reporting outlook.
ELECTRIC GENERATION AND DISTRIBUTION -
Maintain Generation sector "Outperform" rating and Distribution sector "MP"
rating.
BROKERAGE (J. Solotar) -- New millennium, same message: overweight the brokers, and Buy [GS, MER, C, LEH].
PERSONAL CARE AND HOUSEHOLD PRODUCTS (A. Longley) -- New IRI data show an inflection point toward recovery for
CLX.
PUBLISHING AND PRINTING -- W. Drewry and M. Nichols -- *After almost a decade of being viewed as
dinosaurs, it is the start
of a new era for the newspaper stocks. *In the publishing segment, we look for good things from H, HTN, and JWA in 2000.
Extensive handout/analysis on a range of segments.
NEWSPAPERS
PUBLISHING (W. Drewry) --"O"--The Help Wanted index didnt tell us much in November, after a big comeback in
October.
INTRADAY RESEARCH (local times):
03:00 PM SINGAPORE AIRLINES (SIA :
SGD18.90)- (C.Donald) -- B -- After meeting with management on 22nd December, we
continue to take a positive view of Singapore Airlines purchase of a 49% equity interest in Virgin Atlantic. The long term strategic
gain for Singapore Airlines is significant, specifically due to the airline accessing the vital international routes crossing the North
