June 9, 2000

Nike maintains a strong foothold

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

Stock prices reflect Thursday's close. The Dow fell 144 points to 10,669, while the Nasdaq shed 13.70 points to 3,826. The S&P also gave up 9.69 points to close at 1,461.

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

Nike
(NKE, $42 15/16)

52-week high: $65
52-week low: $25 13/16

Strong buy. The financial turnaround at Nike remains intact, as the world's largest seller of athletic footwear and apparel continues to command brand equity, according to Dain Rauscher's Bob Toomey.

Dain Rauscher analysts on May 31 placed 25 calls to athletic specialty retailers across the U.S. "Our channel checks indicate that Nike footwear sales are strong and that new Nike product releases are performing well," Toomey said. "Many store managers reported that, after a sales slip compared to Adidas at some locations, Nike is now leading sales."

Rauscher analysts believe, however, that athletic apparel sales generally continue to be soft, and are not improving as quickly as they had anticipated. Overall sluggishness in athletic apparel sales will likely contribute to the same trend for Nike.

Weakness in the Euro may cause a $0.01 reduction in Rauscher's earnings per share estimates for fourth quarter results, which are due in the third week of June. "Based on its large brand franchise, improving margins and strong cash flow, we believe Nike stock deserves a moderate premium to its sustainable growth rate," Toomey said.

52-week high: $51 5/8
52-week low: $11 7/8

Strong buy. The Securities and Exchange Commission has declared Apex's merger with Cybex to be effective, and the required pre-merger waiting period has expired.

"The merger should benefit both Apex and Cybex through the combined company's leading market share position," said Dain Rauscher's Laurel Johnson.

Apex designs, manufactures and sells switching systems and remote access products for the client/server computing market. Cybex designs, develops and manufactures systems to make server management more efficient.

Johnson said the merger will also improve product breadth, provide greater resources and stronger marketing capabilities.

Special shareholders meetings for Apex and Cybex are scheduled for June 30.

"We believe Apex stock is very attractive and reiterate our 'strong buy-aggressive' rating," he said.

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

Buy. Last Friday's annual meeting did not break new ground, but reinforced the message that RealNetworks "is at the center of the broadband future and that the best is yet to come," according to Pacific Crest's Jeffrey Goverman.

"RealNetworks is quickly becoming the defacto standard for digital entertainment software in the home," said Goverman.

The future, beyond RealNetworks' multimedia applications on PCs, bodes well for the company as the Internet becomes more widely used on cell phones, set top boxes and other consumer electronics, Goverman said.

Competition with Microsoft for similar applications should not hurt RealNetworks long term. "By definition, Microsoft will not win the kind of share it had in the PC world given that it is not a PC-centric universe going forward, as digital entertainment and communication become Internet-based," he said. "RealNetworks is doing a great job not being Microsoft, and hence is the solution of choice."

52-week high: $37 1/4
52-week low: $15

Buy. This Vancouver, Wash.-based company directly markets upscale consumer products via television commercials, infomercials and the Internet. Its product portfolio includes fitness leaders Bowflex and Nautilus, as well as Nautilus Sleep Systems.

Earnings per share for 1Q 2000 were $0.83, compared with $0.45 a year earlier. "These results blew away our expectations of $0.58," said James Bellessa Jr. of D.A. Davidson & Co. The company also reported a 64 percent improvement in net revenue to $42.9 million, with solid increases across all product lines, Bellessa said.

"We have raised our 2000 earnings forecast due to the strong first quarter," he said. "Our annual earnings per share forecast is now $2.79, compared to our previous forecast of $2.55. Our 2001 estimate is raised by a dime to $3.25 per share. Purchase of this stock is advised to investors seeking a high 25 percent growth company at a low multiple of earnings. The company is a marketing powerhouse."

D. A. Davidson's five-year target for Direct Focus is $100.

52-week high: $64 3/8
52-week low: $16 1/4

Strong buy. Steve Weinstein of Pacific Crest said Getty is positioned for 50 percent year-over-year earnings growth for the next several years and believes buyers of the stock should be aggressive at current levels.

Getty is a leading provider of imagery to businesses and consumers worldwide -- distributing products digitally over the Internet and on CD ROMs.

The company is on track for launch later this year of Getty Source, a subscription-based service for the media. Getty requires all new images come in digital format, and the company is expected to benefit from such images during the Summer Olympics, Weinstein said.

"Demand for imagery in the creative professional segment remains robust," he said. "We believe that overall organic growth in-line with the last two quarters -- 25 percent in Q4 1999 and 30 percent in Q1 2000 -- is repeatable and may provide some upside to the quarter."

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

Buy. Ragen MacKenzie's Laurie Breidenbach said she expects short-term volatility in the stock, but foresees upside potential for the second half of the year.

"Trends throughout the company are strong, with some regions reporting record levels, and new store initiatives/programs are beginning to contribute positively to comparable sales growth," said Breidenbach.

Comparable store sales for the first quarter were slightly lower than expectations, but Breidenbach said the firm is encouraged by the current revenue strength. Continued strength in comparable store sales is the key to future appreciation of the stock, which Breidenbach said is fairly valued in the $34 range and below.

Albertsons.com recently launched an in-store pick-up service at 36 stores in western Washington. Shoppers go to albertsons.com, build their basket and pay with a credit card. They then pick up the groceries, and are not charged a fee for the service for orders more than $5.

"We would expect some price appreciation over the next few quarters within the food sector, as earnings visibility becomes much clearer and the time frame to actual realization of the expected earnings growth shortens," she said.

Previous columns:

• Esterline lifted by aerospace biz, 06-02-2000
• RealNetworks builds on market leadership, 05-26-2000
• 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