July 21, 2000

Lattice Semi leads with logic devices

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

Stock prices reflect Thursday's close. The Dow climbed 148 points to 10,844, while the Nasdaq gained 129 points to 4,184. The S&P 500 also rose 13.51 points to 1,495.

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

52-week high: $83 3/8
52-week low: $26 15/16

Strong buy. Dain Rauscher's Bob Toomey said this week's quarterly earnings announcement substantially exceeded his estimate, with sequential revenue growth up 11 percent to $139.9 million -- well ahead of the $135 million estimate. Net income grew 20 percent sequentially.

Based in Hillsboro, Ore., Lattice develops complex programmable logic devices (CPLDs) and related development software. Lattice invented and is the world's leading supplier of in-system programmable CPLDs.

"High-density CPLD products continue to be the primary engine, growing 15 percent sequentially compared with flat sequential growth for low-density PLDs," Toomey said. "High-density CPLDs represented approximately 75 percent of total revenue in the quarter, up from 72 percent in Q1."

Improving profitability reflects higher manufacturing volume, improved product mix and impressive cost control, Toomey said. Technology advancements in PLD design and function have opened new opportunities for CPLD applications.

"We expect margins to continue to improve, driven largely by further product mix improvements and declining unit costs," he said. "As a result of improving margins, we expect income growth to exceed revenue growth in 2000 and 2001. Based on the higher Q2 revenue base, we have raised our earnings per share estimates for 2000 from $2.19 to $2.44, and for 2001 from $2.72 to $2.93."

52-week high: $111 3/4
52-week low: $35 3/4

Strong buy. Go2Net this week reported third quarter results of $23 million in revenue and $0.22 earnings per share -- beating US Bancorp/Piper Jaffray estimates of $21.6 million and $0.15 EPS. The balance sheet showed more than $227 million in cash and marketable securities.

"Go2Net demonstrated the quality of its revenue, nothing that the company took on a number of premier offline and online clients during the quarter, including Disney, American Express, Merrill Lynch, Gateway and Mercedes Benz," said analyst Safa Rashtchy, who said Go2Net should be a core Internet holding. "In response to concerns over a dot.com meltdown, the company noted that no client accounted for more than 10 percent of revenue, and the company estimates that only 5 percent of its total revenue is derived from clients with questionable financial stability."

Go2Net's non-advertising revenue -- consisting of technology licensing revenue and transaction-based e-commerce revenue -- continues to demonstrate the most growth momentum, he said. "We believe Go2Net very aggressively pursued advertisers during the quarter to keep up with internal projections, while maintaining stringent advertising client standards, demonstrating the company's ability to grow advertising even under the more difficult market conditions this quarter." Advertising revenue still holds strong long-term promise for Go2Net, he added.

52-week high: $45 1/4
52-week low: $19 7/8

Strong buy. Starbucks reports third quarter results July 27. A good Q3 is, as Pacific Crest's Laura Richardson puts it, "in the bag."

Richardson expects earnings at $0.18, up about 38 percent over the same quarter last year. Starbucks is also ahead of schedule on store openings, even after raising fiscal year 2000 goals last quarter. The company could open between 1,000 and 2,000 stores in fiscal 2001.

With the acceleration in store openings, Richardson said Starbucks may raise 2001 guidance. "For the last two fiscal years, Starbucks has announced the next fiscal year's store opening goals with July sales or earnings releases, so new goals could be released with Q3 earnings," she said. "The announcement of acceleration in store openings or other good news on the July 27 conference call could propel Starbucks above our $40 price target."

52-week high: $74 1/2
52-week low: $42

Buy. Weyerhaeuser on Tuesday beat expectations for the second quarter. Due to the upside surprise, Chip Dillon of Salomon Smith Barney increased EPS estimate for 2000 by five cents, to $4.70.

Weyerhaeuser reported second quarter profit of $285 million, or $1.27 EPS -- up 57 percent from 2Q99. Salomon Smith Barney lowers its third quarter estimate by $0.12 to $1.12, due to lower wood products expectations. But Dillon said fourth quarter estimates rise to $1.24 from $1.16. Going into 2001, he sees a more conservative wood products estimate.

"We maintain our 'buy-medium risk' rating and $87 price target on Weyerhaeuser," he said. "We note that the company has bought back over 5 percent of its shares so far this year."

52-week high: $86 5/8
52-week low: $13 5/16

Strong buy. WebTrends this week reported revenue and earnings per share figures that beat estimates at Pacific Crest. Revenue grew 237 percent year-over-year, to $13.5 million, ahead of Pacific Crest's $12 million estimate.

"Operating margin improved 13 percent vs. 11 percent last quarter and will continue to improve as the company leverages its proven business model," Rob Owens. "WebTrends also saw strong ordering from existing customers bringing the worldwide total to 45,000."

The quarter saw the addition of more than 5,000 customers for WebTrends, bringing the worldwide total to 45,000. The company also saw strong ordering from existing customers, accounting for approximately one-third of orders in the quarter and about 40 percent of revenue.

"The company launched Commerce Trends 3.0, with its Visitor Relationship Management platform, signing significant new partnerships around content management, data management and e-marketing initiative," said Owens. "We are increasing our revenue and EPS estimates going forward."

52-week high: $96
52-week low: $27 17/32

Strong buy. RealNetworks reported second quarter results on Tuesday, posting revenues of $62.6 million -- an increase of 119 percent from the second quarter of 1999.

The software, advertising and service sectors all contributed to the positive results, notes Jeffrey Goverman of Pacific Crest. Traffic to the Real.com Guide has grown by more than 78 percent among home users in the first six months of 2000.

"Since November, RealNetworks has driven 430 million visits to media companies providing programming through the Real.com Network, and an estimated 174 million visits in the second quarter of 2000," said Goverman. He said RealNetworks will continue to capitalize on the move to non-PC broadband applications such as cell phones, consumer electronics and set top boxes.

"Broadband is the key to mass acceptance of streaming media and digital distribution," he said. "We continue to believe better times are ahead as the company is a key interface for digital media. He who owns the interface wins."

Previous columns:

• Northwest Stock Report, 07-14-2000
• Expeditors finds growth in global logistics, 07-07-2000
• Online travel site rated a buy buy, 06-30-2000
• Primus leads in its e-business field, 06-23-2000
• Tektronix moves into high growth markets, 06-16-2000
• Nike maintains a strong foothold, 06-09-2000
• Esterline lifted by aerospace biz, 06-02-2000
• RealNetworks builds on market leadership, 05-26-2000