August 25, 2000

Albertson's presents buying opportunity

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

Stock prices reflect Thursday's close. The Dow gained 38.09 to close at 11,183, while the Nasdaq rose 42.27 to 4,053. The S&P 500 added 2.34 to close at 1,508.

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

Albertson's
(ABS, $22 5/16)

52-week high: $52 1/4
52-week low: $21 1/2

Strong buy. In the wake of Tuesday's announcement by Albertson's that it would fall short of expectations for second quarter results, Dain Rauscher's Bob Toomey rates the stock a "strong buy" based on valuation.

The stock dipped more than 25 percent since the earnings warning, but Toomey said the Boise company is moving forward with proper corrections. Albertson's reports results Sept. 5.

The company said same store sales in July and higher-than-expected merger costs related to its purchase last year of American Stores, Inc. would contribute to the shortfall. Management guided earnings per share lower, to 50 cents a share -- 12 cents less than analysts' expectations.

In addition to guiding EPS expectations lower, the company announced the postponement of 50 new store openings in the fourth quarter of 2000 to the first quarter of 2001. The company also said it plans to reinvest gross profit for the remainder of 2000 in store comparable growth.

"We believe Albertson's is taking proactive steps to increase comps and reduce costs through concentration on core store sales formats, increased marketing and across-the-board expense review," said Toomey.

He said Rauscher is reducing fiscal year 2000 EPS estimate to $2.26 from $2.65 and fiscal year 2001 to $2.81 from $3.12. "We now believe that our forecast for improving comps and gross margin were too optimistic."

Increased labor costs and operational issues related to the merger will be a challenge for Albertson's. On the upside, Toomey said the company is improving its balance sheet and executing an aggressive store conversion plan. "Although we recognize the risks and potential complication of Albertson's pursuit of multiple priorities in an increasingly competitive environment, we believe in the value of the Albertson's franchise and remain confident in the long-term outlook for the stock," he said. "Through renewed focus on expense control, increased marketing initiatives, improved execution and assuming modest comp growth, we think Albertson's can regain earnings growth in 2001."

52-week high: $59 1/4
52-week low: $25 13/16

Outperform. Investors gave a lukewarm greeting this week to Nike's announcement that it plans to grow its share in the women's market. Carol Pope Murray of Salomon Smith Barney said the strategy is not unique in that other brands such as Reebok and Adidas are also focusing on the women's market.

Nike will form a new unit which will integrate the design, merchandising, marketing and retail operations of women's footwear, apparel and equipment. Women's apparel and footwear is about 20 percent of the total company sales. The company said its first priority will be to re-merchandise the women's brand in the U.S.

Nike will also focus on getting women's products to market faster, and better aligning seasonal buying habits. "Nike has already seen a positive impact in women's through use of concept shops in U.S. department stores and Japan, and women's focused Web site sales in Hong Kong," Murray said. "The company views this as a major step in growing Nike's share in the global women's market." Nike reports first quarter earnings Sept. 11. Salomon Smith Barney projects earnings per share to be 74 cents, with sales of $2.62 billion.

52-week high: $37
52-week low: $21 5/8

Buy. Washington Mutual announced this week it would purchase Bank United Corp. for $1.5 billion -- a move that will pay off in the long term, according to Thomas O'Donnell of Salomon Smith Barney.

Washington Mutual chairman Kerry Killinger said the acquisition would allow the bank to capitalize on the growth potential of the Texas market. But O'Donnell said Washington Mutual will face two negatives in the near-term because of the purchase.

"One, the shares of the acquirers, in the current environment, nearly always undergo downward pressure," he said. "Two, many investors want Washington Mutual to show earnings free from factors related to takeovers for a sustained period. Some investors may see the recent strength in the Washington Mutual shares as being harder to continue with an acquisition looming."

Still, O'Donnell said Texas is one of the fastest growing banking markets in the nation. And Bank United, he added, is a "bank-like thrift," with a proven ability to grow its commercial and consumer loan portfolios.

"We are trimming our 2001 EPS estimate to $3.87 from $3.90," he said. "We are maintaining our 'buy' rating on Washington Mutual shares on the basis of their low valuation."

52-week high: $50 3/4
52-week low: $5 1/2

Strong buy. Data Critical, a Bothell company that designs and manufactures communication systems to allow access to healthcare information, announced this week a distribution agreement with ePhones -- an online vendor of wireless products and services.

Under the agreement, Data Critical will be the exclusive provider of health care services for ePhones, and ePhones will be Data Critical's exclusive online fulfillment provider for wireless phones and pagers. The relationship will promote distribution of DCCA's UnwiredDr.com wireless physician offering. As a result, physicians who order UnwiredDr.com will be able to dictate notes, prescribe medication and access lab results via wireless phones and pagers.

"We believe that the agreement with ePhones is a nice distribution announcement, however, it does not impact our near-term outlook or estimates," said U.S. Bancorp/Piper Jaffray's Daren Marhula. "We believe the company will continue to announce strategic partnerships in its efforts to expand distribution and visibility." He sets a 12-month price target of $30.

52-week high: $16 5/8
52-week low: $9 1/4

Strong buy. Esterline reports third quarter earnings the morning of Aug. 30 before the market opens. "We are looking for EPS of 42 cents, and believe there is potential for upside to our estimate," said Bob Toomey of Dain Rauscher.

Key drivers for the stock include the upturn in aerospace complemented by a strong after-market for component parts, Toomey said. "We think Esterline stock is very attractively valued," he said. "Trading at 9.6 times earnings, Esterline offers the lowest P/E ratio of all our Western Region Focus stocks, and an attractive discount to our EPS growth estimate of 14 percent to 15 percent. We suggest investors accumulate or initiate positions based on attractive valuations."

Previous columns:

• Micron poised for seasonal upswing, 08-18-2000
• InterNap could thrive on Internet scalability, 08-11-2000
• Cell Therapeutics excels with cancer drug, 08-04-2000
• InfoSpace more attractive with Go2Net acquisition, 07-28-2000
• Lattice Semi leads with logic devices, 07-21-2000
• 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