May 26, 2000

RealNetworks builds on market leadership

Each week, the Daily Journal of Commerce compiles recommendations on Northwest stocks from local analysts.

Stock prices reflect Thursday's close. The Dow sank 211 points to 10,324, while the Nasdaq gave up 65 points to 3,205. The S&P 500 skidded 17.5 points, closing at 1,381.

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

RealNetworks
(RNWK, $33 3/8)

52-week high: $96
52-week low: $25 1/2

Buy. The leader in streaming media distribution solutions this week unveiled RealVideo 8, a high resolution video platform. Stephen Mahedy of Salomon Smith Barney said the new platform, developed with Intel, promises to deliver high-clarity, full-motion video over dial-up consumer modems. It will also deliver VHS-quality video over mainstream DSL or cable modem broadband.

"We believe [Wednesday's] announcement underscores RealNetworks' determination to build upon its market leadership in streaming media delivery by continuing to innovate on all technology fronts by leveraging the installed base of RealPlayer users and the installed base of RealServer G2 technology," said Mahedy. He set a 12-month price target of $100, noting the RNWK is a "speculative risk."

RealNetworks CEO Rob Glaser and director/producer Francis Ford Coppola at the press conference this week demonstrated the widespread mainstream media applications of RealVideo 8 with the showing of an encoded version of "Apocalypse Now."

"RealNetworks stands ready to attract greater interest among both Internet and mainstream content providers with these important server-side platform enhancements and technology that shows great potential as an enabler of collaborative remote video production," Mahedy said. He added that the advent of mainstream mobile data and handset applications suggests sustainable and possibly accelerated growth in usage.

"RealPlayer continues to demonstrate its universality with users in 94 countries, representing 53 languages," he said. "There have been over 125 million unique downloads worldwide, with 48 million outside the U.S., and 50 million active users per month. These figures are up roughly 100 percent year-over-year."

Nextlink Communications
(NXLK, $35 1/2)

52-week high: $132 1/2
52-week low: $33 3/8

Strong buy. Pacific Crest's Brent Bracelin said Nextlink -- an operator of high capacity, fiber optic networks -- is well positioned to profit from its European expansion plans.

Nextlink is expanding into international markets through acquisition of pan-European fiber network, trans-Atlantic undersea fiber (NY to London) and metro fiber rings in Amsterdam, Brussels, London, Frankfurt and Paris.

"European investment marks the beginning of the transformation of Nextlink from a leading competitor in the $250 billion U.S. services market to a global player in a $1 trillion services market," said Bracelin. "The European fiber acquisition provides Concentric data centers in London, Amsterdam and Paris with an abundance of low-cost bandwidth. Nextlink is the leading next-gen carrier building an end-to-end broadband network addressing the U.S. communications market predicted to double from $220 billion to $400 billion by 2008."

TriQuint Semiconductor
(TQNT, $79 5/16)

52-week high: $135 1/2
52-week low: $10 15/16

Strong buy. Jim Moeller of Dain Rauscher on Thursday upgraded TriQuint from "buy" to "strong buy," noting the company's announcement this week to purchase a Texas wafer fabrication facility.

TriQuint designs, develops and manufactures a range of high performance analog and mixed signal integrated (gallium arsenide, GaAs) circuits using proprietary technology.

Moeller said this week's announcement of the Micron Technology facility purchase was the result of management realizing it could not meet demand forecasts.

"TriQuint realized that even with a transition to six-inch wafer production capability in its Hillsboro plant, the company would not meet the potentially huge longer-term demand," he said. "By mid-2001, we believe TriQuint will be the only GaAs component company to have two six-inch production facilities. This capacity potentially positions the company as the world's largest GaAs component company with facility space for ultimate revenue business of more than $1 billion."

Moeller said TriQuint shares, beaten down in recent weeks, will trade at multiples comparable to other market-leading competitors. He sets a 12-month price target of $175.

Costco
(COST, $30)

52-week high: $60 1/2
52-week low: $25 15/16

Strong buy. Costco stock plunged Wednesday morning on news that the membership warehouse shopping chain reported earnings a penny below estimates for the third quarter. Laura Richardson of Pacific Crest characterized Wednesday morning's panic selling as "a little bit of an over-reaction."

Total 3Q sales increased 14 percent to $6.7 billion, from $5.9 billion, while Pacific Crest was expecting a total sales increase of 15.7 percent. The main reason for the revenue disappointment was sluggish sales in the last week of April and first week of May, particularly in the Northwest and Northeast, Richardson said.

A possible economic slowdown, increased pre-opening expenses and rising costs of labor have guided earnings per share growth down to the 11 to 13 percent range from 15 percent originally projected for Q4.

"We still like Costco long-term, think core business operation is solid and we are excited about expansion opportunities," Richardson said. While Wednesday's sell-off was an over-reaction, she added: "We would wait to make sure we've seen the bottom before getting aggressive in this name."

Albertson's
(ABS, $35 1/2)

52-week high: $56 15/16
52-week low: $23 1/16

Buy. Michael Shea of D.A. Davidson & Co. said gross margins continued to improve for Albertson's in Q4 1999.

Albertson's is the second largest supermarket chain in the United States and currently operates more than 2,500 supermarkets in 37 states across the country. Although the integration of American Stores' California operations has been more difficult than expected, the company believes that the cost saving synergies will be much higher than the $300 million originally anticipated, Shea said.

Also, programs such as fuel stations, Starbucks kiosks and the new Arco reward cards have produced strong increases in traffic within stores.

"Management characterized remodeled stores as producing very strong comparable sales," he said. "We believe the company's plan to roll out 120 additional gas stations, remodel 130 existing stores and continue to roll out its reward card will help drive comparable store sales in 2000. We continue to believe that the shares of Albertson's have substantial appreciation potential, trading at just 9.1 times our year 2000 estimate."

Click2Learn.com
(CLKS, $11 7/8)

52-week high: $22 15/16
52-week low: $3 7/8

Strong buy. Steve Lidberg of Pacific Crest said Click2Learn is well positioned to capitalize on market opportunity. Click2Learn is a single source online learning solution to distribute and manage learning applications within an enterprise.

Recent alliances with MorningStarAdvisor.com and Sapient Corp. bode well for second quarter momentum. "We believe corporations will be strong adopters of e-learning platforms leveraging the Internet's ability to deliver content anytime, anywhere and in a very cost-effective manner," Lidberg said. "Click2Learn has early move advantage, strong relationships with customers and a growing network of partners."

Previous columns:

• DJC Northwest Stock Watch, 05-19-2000
• Northwest Stock Report, 05-12-2000
• Northwest Stock Watch, 05-05-2000
• NW stock watch, 04-28-2000