May 5, 2000

Northwest Stock Watch

Each week, the Daily Journal of Commerce asks local analysts their views on Northwest stocks.

Stock prices reflect Thursday's closing. The Dow closed on Thursday down 57 points at 10,888, and the Nasdaq rose 144 points to 3,774.

Analysts use the following guidelines for their recommendations:

• Strong buy, buy or highest
• Buy/accumulate, mild buy, outperform, attractive or above average
• Neutral, hold, reasonably priced, average or market performer
• Mild sell, unattractive, below average or underperform
• Sell, lowest

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Avenue A., Inc.

(AVEA, $23 9/16)
52-week high: $89
52-week low: $16

Buy. Salomon Smith Barney initiated coverage of Avenue A in late March with a "buy" rating. At that time, the stock was in the low $30's, and while it has come down another 10 points since then, Salomon analyst Roger Tilton maintains the buy recommendation and projects a 12-month target price of $80.

A provider of technology-based Internet advertising services to businesses, Avenue A helps advertisers meet their Internet needs. "Avenue A possesses all the qualities we look for in determining attractive online media investment opportunities: a strong and respected brand name; unique and sustainable strategic advantages; and a business model that makes sense and can make money for shareholders," said Tilton.

With more consumers spending time online, Tilton said Avenue A's model is one of the most predictable and potentially profitable Internet plays. Salomon projects that Avenue A will generate $41 million in gross profit in 2000 and $68 million in 2001 -- a 60 percent to 65 percent increase. "We believe Avenue A deserves a solid premium to its peer group [which includes DoubleClick and 24/7 Media] for several reasons: as a younger company, Avenue A's near-term momentum in sales and customer wins is likely to be greater than several of its peers, and their management and corporate structure compare favorably with other companies."

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Getty Images

(GETY, $31 1/2)
52-week high: $64 3/8
52-week low: $16 1/4

Strong buy. Pacific Crest analyst Steve Weinstein recommends investors buy ahead of Getty's first quarter results announcement before the open on May 10. "We believe that strong organic growth spurred by the transition to a digital platform may fuel significant upside to our top-line estimate," Weinstein said.

Getty is a leading provider of imagery to businesses and consumers worldwide, distributing via the Internet and CD Roms. "Beyond the income statement, we will be focusing on the integration of Getty's Image Bank," he said. "In particular, we will be looking for some signs of growth in the brand as it leverages Getty's e-commerce platform. We recommend investors buy ahead of the earnings news."

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Amazon.com

(AMZN, $55 1/16)
52-week high: $113
52-week low: $40 13/16

Strong buy. Though Amazon has fallen from grace since its mid-December peak of $113, Doug Carpenter of Pacific Crest likes the company's recent foray into kitchen ware.

Amazon now features brands such as Calphalon, Cuisinart and Farberware. "Amazon launched a kitchen store tab focused on culinary products and accessories, such as cookware, gadgets and small appliances," Carpenter said. "We estimate this market opportunity addressed by the new tab is over $20 billion. Typical retail margins in this category run in the high 30 percent range, well above Amazon's average margin of roughly 20 percent."

With an established e-platform and customer base, Amazon is positioned to expand into new categories with greater speed, lower costs and greater chance of success, he added.

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Electro Scientific Industries, Inc.

(ESIO, $59 5/16)
52-week high: $69 1/8
52-week low: $17 3/32

Strong buy. Electro Scientific is the market leader in high performance censors and controls, illuminated cockpit components and advanced elastometer materials.

Late last month, Electro Scientific announced multiple orders valued at more than $6 million from Samsung for multilayer ceramic capacitor test and termination equipment. "This continues a series of large orders ESI has received in recent months and reflects the ongoing extraordinary strength of the capacitor market, which is being driven by growth in telecom and wireless applications," said Dain Rauscher's Robert Toomey. "It appears that ESI's other businesses, such as memory repair and circuit fine tuning, also continue to experience very strong demand conditions."

Recent quarterly earnings results from other capacitor manufacturers confirm strong industry conditions. "The components industry remains very tight and large manufacturers are adding capacity," he said. "We believe the underlying business for ESI supports our very positive earnings outlook and projections for a higher stock price." He sets a 12-month price target of $76.

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Alaska Air Group

(ALK, $29 11/16)
52-week high: $46 5/8
52-week low: $25 1/4

Buy. After a recent discussion with Alaska Air's CFO Brad Tilden, Ragen MacKenzie analyst Peter Jacobs said he is comfortable with the company's capacity and traffic growth. "Management feels good about advanced traffic bookings, despite running a reduced schedule," said Jacobs. "Looking out the next few months, management sees at least flat-to-positive improvements in load factors. We feel reasonably comfortable with recent traffic numbers."

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Cutter & Buck

(CBUK, $10)
52-week high: $22
52-week low: $8

Accumulate. Senior management of this men's and women's sportswear and outdoor apparel said recently that the company's business trends remain strong despite overall concerns of slowing in the golf industry and low valuations in the apparel sector.

"The company's corporate business continues to meet management's growth expectations," said Ragen MacKenzie's Laurie Breidenbach. "We should see concerns over higher inventory levels lessen, as the continued revenue growth in the corporate channel rationalizes the higher inventory levels." The company reports fourth quarter earnings in early June. Ragen MacKenzie's 4Q estimate is $0.60 a share versus $0.53 a year ago. Ragen MacKenzie sets a 12-month price target of $20.

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Immunex

(IMNX, $39 7/16)
52-week high: $83
52-week low: $14

Buy. Steve Rhone of Laird Norton Trust said Immunex's drug for rheumatoid arthritis, Enbrel, is driving earnings. "The product pipeline appears promising," he added.

Immunex stock got a boost earlier this week after a report in Nature Medicine said that experiments at the University of Pittsburgh showed hope for an anti-cancer agent that Immunex and Genentech are collaborating on.

But Andrew Heyward of Ragen MacKenzie gives Immunex the slightly lower rating of "market perform."

"After checking with scientists at Immunex, our opinion is that it is far too early to tell if [the University of Pittsburgh] experimental results will apply to the Trail molecule being developed by Immunex and Genentech," he said. "Immunex and Genentech already know that different forms of Trail can have very different biological effects."

Still in the development phase, Trail is a molecule that appears to selectively cause cancer cells to commit suicide, while normal cells are not affected. Trail is tentatively scheduled for clinical trials around the end of the year.

Previous columns:

• NW stock watch, 04-28-2000