September 29, 2000

Cell Therapeutics soars on FDA approval

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

Stock prices reflect Thursday's close. The Dow finished up 195 points at 10,824, while the Nasdaq jumped 122 points to 3,778. The S&P 500 also gained 31.72 to 1,458.

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: $60.37 52-week low: $1.31

Strong buy. U.S. Bancorp/Piper Jaffray this week reiterated its 'strong buy' for Cell Therapeutics, following the Food and Drug Administration's approval of its drug Trisenox.

"With Trisenox's approval and imminent launch, Cell Therapeutics is now a commercial biotechnology company," said analyst Peter Ginsberg. "We have modified our valuation multiple and discount rate to reflect this momentous change."

Trisenox will be used for the treatment of relapsed or refractory acute promyelocytic leukemia (APL). The FDA's rapid, six-month approval process is evidence of its "enthusiasm" for the drug as well as its efficacy, Ginsberg said. In tests, Trisenox had an 85 percent complete response rate.

In addition to its efficacy with APL, Trisenox may also be used in the treatment of non-Hodgkin's lymphoma. The National Cancer Institute is studying this application, and "the clinical community appears intrigued with the drug's prospects in this setting," he said.

Limited sales of Trisenox will occur in 2000, and Piper Jaffray has adjusted its sales estimates going forward. Sales estimates have been adjusted from $7.1 million to $7.3 million in 2001; $34 million to $42 million in 2002; and $77 million to $82 million in 2003.

Piper Jaffray this week introduced a new 12-month price target of $77, up from $44. "This new price target is based on a 60 P/E multiple of our fully taxed 2005 EPS estimate of $3.14," he said. Ginsberg expected Trisenox to begin shipping next week.

52-week high: $34.50
52-week low: $14.62

Market perform. After hitting a 52-week low this week, Nordstrom's shares have staged a minor comeback on the heels of an announcement Wednesday that it would purchase the Faconnable line of upscale clothing.

To reflect the acquisition, Laura Richardson of Pacific Crest adjusted her fiscal year 2000 EPS estimate by 3 cents. Nordstrom will pay the French-based apparel maker $88 million in cash and five million shares of newly issued stock.

Faconnable's men's and women's apparel and accessories are sold in the U.S. exclusively through Nordstrom, and sold by other retailers in 23 primarily European countries. Nordstrom may expand Faconnable's wholesale distribution in Europe, the U.S. and Japan.

Also, on Thursday Nordstrom announced it had signed a letter of intent for a 144,000-square-foot store at Dulles Town Center in Va. Construction would begin early next year, with the grand opening scheduled for September 2002.

Richardson said the Faconnable acquisition is part of an 11 cent "conservative" markdown for her projected $1.37 EPS next year, due to negative assumptions about gross margins and expenses. "We continue to believe Nordstrom is on the right long-term path, but the task of managing a big-box fashion store is not easy," she said. "Tools to help manage are still under development, and the economic environment is not helpful to Nordstrom or its stock now."

52-week high: $32.81
52-week low: $6.87

Market perform. Corillian, a provider of solutions to banks and brokers for financial transactions over the Internet, could be well positioned to benefit from a projected surge in online banking in the next few years.

Tim Butler of Pacific Crest said the number of online banking customers is expected to grow from four million in 1998 to 40 million in 2003. His firm initiated coverage on the company this week, setting a 12-month target of $25.

"Corillian has emerged as a leading enabler of online financial services, and we believe that the company is well-positioned to garner a considerable share of online banking customers over the next five years," Butler said.

Corillian's customer list includes Bank One, SunTrust and Huntington. As financial institutions migrate customers to the online channel and add new customers, Corillian's revenues should grow accordingly.

"Corillian is a growth story," he said. "Corillian is in the early stages of a rapid growth cycle. We believe investors in the Corillian story will be generously rewarded over the long haul." He estimates growth of 210 percent in 2000, 96 percent in 2001, 70 percent in 2002 and 63 percent in 2003. Break-even is expected in late 2002.

The near-term dark cloud hanging over Corillian's share price is the lock-up expiration on Oct. 9. Thus, Pacific Crest assigns the 'market perform' rating. Third quarter results are due Nov. 1. "Assuming that Corillian remains on its current growth trajectory, we would likely have reason to become more constructive on the stock at that time," Butler said.

52-week high: $60.50
52-week low: $25.93

Buy. With its strong business model, unique merchandising, value-oriented approach and strong execution, Costco remains a top-pick, near-term performer, according to Dain Rauscher's Laurel Johnson.

"Costco has demonstrated improving valuation and we believe will continue momentum as the market values sustainable comparable growth. We are increasingly confident that the company can navigate the difficult retail environment."

Johnson said Costco can attain a multiple of 30 times fiscal 2001 EPS estimate of $1.50. "Accordingly, we are raising our 12-month price target from $38 to $45."

52-week high: $125.35
52-week low: $12.75

Strong buy. Pacific Crest this week initiated coverage of Watchguard, citing its large distribution network and growing subscription revenues.

Watchguard is a leader in Internet security firewall and visitor relationship management solutions for small and medium-sized organizations using the Internet for e-business transactions and communications.

"The company has built a network of over 80 distributors across 56 countries, with the potential to reach over 200,000 resellers," said analyst Rob Owens. Some of the larger names include Unisys, Ingram Micro and Tech Data. "Watchguard also has 50 Internet Service Provider partners, providing it with a significant first-mover advantage both domestically and internationally."

Watchguard recently announced a new chipset product offering, expanding its original equipment -- an offering that could provide compelling upside to its business model, Owens said. Subscription revenue also has the potential to grow to 50 percent of all revenues for the company.

"Trading at a discount to its peer group, we believe the company will undergo multiple expansion as it continues to execute on its plan," he said.

52-week high: $66.93
52-week low: $32

Strong buy. While Boeing has more than doubled from its 52-week low in April, Bob Toomey of Dain Rauscher maintains a 'strong buy' rating and advises buying on dips.

Boeing on Thursday predicted the world's freightliner fleet would almost double to 3,200 by 2019, with air cargo traffic growing an average rate of 6.4 percent a year. Boeing predicts particularly robust growth in Asia.

In addition, Boeing has boosted its 747 and 777 production, and has 386 confirmed orders versus 332 in the year-ago period, Toomey said.

He called moves of the stock above $60 "technically bullish," and said he remains bullish even with its impressive six-month run.

"We would not be surprised to see some consolidation off the recent move and would be aggressive buyers on any pullbacks less than $60."

Previous columns:

• ESI poised for growth in electronics, 09-22-2000
• SonoSite has first-mover advantage overseas, 09-15-2000
• Starbucks' ice cream melts, coffee is hot, 09-08-2000
• Amazon leverages brand overseas, 09-01-2000
• Albertson's presents buying opportunity, 08-25-2000
• 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