November 13, 2000

Expeditors beats the Street, but trades high

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

Stock prices reflect Thursday's close. The Dow closed down 72.81 points to 10,834, while the Nasdaq lost 31.35 to 3,200. The S&P 500 also shed 9.14 to 1,400.

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: $57.50
52-week low: $32.62

Buy. With Expeditors' shares trading at nearly 29 times 2001 estimates, Stephen Jacobs of U.S. Bancorp Piper Jaffray this week reduced his rating from "strong buy" to "buy." In the wake of Wednesday's third quarter earnings announcement, he raised his 12-month price target from $56 to $62.

The global logistics provider announced record quarterly net earnings of $25.6 million, compared with $17.8 million in the third quarter of 1999 -- a 44 percent increase. Net revenues increased 26 percent to $151.3 million compared with $119.7 in 3Q99. "We don't model our business model after anyone else and we don't believe that it is possible to understand us by looking elsewhere," an upbeat CEO Peter J. Rose said after the 3Q announcement. "We are delighted that those who failed to believe were caught just a little short following our pre-release of these record results."

Rose was referring to his company's Oct. 11 surprise announcement that operating income for the quarter would exceed Wall Street estimates amid strong demand for air freight. Third quarter earnings of 47 cents per share were in-line with upwardly revised expectations, exceeding prior estimate of 41 cents. That compares with last year's EPS for 3Q of 33 cents -- a 42 percent jump.

Jacobs said he expects Expeditors to continue to trade near the high end of its historical trading range due to its strong fundamental outlook. He expected international freight volumes to grow at a healthy pace in 01, and that Expeditors will continue to gain market share and improve its operating margin.

"Considering that Expeditors' third quarter growth rates were greater than our estimates of international freight market volume growth, we believe that Expeditors continues to gain market share and benefit from increased outsourcing of logistics services," said Jacobs. "Expeditors has been able to grow its total net revenues sequentially over the last three quarters due to its price discipline and its relationship with satisfied customers."

He increased 2000 EPS from $1.48 to $1.51 due to the strong quarter-over-quarter performance and healthy outlook for the international freight market. EPS for 2001 were also boosted from $1.70 to $1.88.

52-week high: $67.87
52-week low: $32

Strong buy. Dain Rauscher's Bob Toomey, citing strong earnings momentum going into 2001, called Boeing "a best idea for year-end 2000."

"The upturn in the aerospace cycle continues to drive strong demand for Boeing's commercial aircraft," said Toomey. "The improving commercial order outlook is supported by economic recovery in Asia and strong air traffic."

Boeing on Wednesday announced an order from Italian air carrier Alitalia for six 777s. "The 777 is emerging as the big winner in 2000," said Seddik Belyamani, executive vice president of sales for Boeing's Commercial Airplanes Group. "We now have 62 orders so far, with 43 previously announced intents to order in the final stages of processing."

Toomey said he believes Boeing can sustain earnings per share growth of about 20 percent during the next three years and "very strong" free cash flow. Dain Rauscher projects free cash flow of $4.1 billion in 2000 and $3.4 billion in 2001. The firm believes Boeing will utilize this cash flow for additional stock buy-backs as well as strategic acquisitions, particularly in the area of commercial services.

"We believe Boeing has the right strategic approach to the market -- a strong business focus -- and expect the company to continue to deliver solid execution," Toomey said. "We think Boeing will continue to drive shareholder value through its focus on continued improvement in its core business; by continuing to refine and enhance production processes and efficiencies; and by selectively expanding its business portfolio over time through strategic aerospace-related acquisitions."

Fiscal year EPS are estimated at $1.30, and FY00 at $1.06. He set a 12-month price target of $80.

52-week high: $48.18
52-week low: $23.12

Buy. While revenues from Starbucks ice cream and ice cream bars continued to melt this fall, Starbucks ground coffee sales have been accelerating, according to Mark Kalinowski of Salomon Smith Barney.

According to scanner data regarding sales within merchant channels, sales of Starbucks coffee -- for the four weeks ended Oct. 8 -- continued to be up by triple digits year-over-year. Ground regular posted 194 percent volume growth, ground decaf came in at 170 percent and whole bean garnered 145 percent -- all categories accelerating by 20 percentage points or more over the previous month's performance.

Even Frappuccino sales showed some life, posting gains of 5.2 percent year-over-year, snapping two months of negative volume growth. Ice cream and ice cream bars continue to decline by double-digits year-over-year, as expected because the company is de-emphasizing the segment, Kalinowski said.

On Nov. 2, Starbucks reported a 12 percent rise in October same-store sales, compared to the same period a year ago. Total net revenue for the month reached $188 million, up 28 percent from $147 million in October 1999. As of Oct. 29, Starbucks has 3,569 company operated and licensed stores. The company projects 25 percent a year revenue growth rate through 2005.

Based on most recent figures, Salomon projects Starbucks will increase its market share in retail sales for each coffee category. "Each category continues its trend of share expansion," Kalinowski said.

52-week high: $40.37
52-week low: $14.50

Strong buy. Laurel Johnson of Dain Rauscher said Coldwater Creek -- the specialty retailer of women's apparel and accessories -- offered upbeat predictions at an analyst meeting earlier this month. She called Coldwater "a compelling growth story."

The Nov. 2 analyst meeting was held at the new Coldwater store in Palatine, Ill., a prototype that Coldwater will be using as it rolls out its retail store expansion strategy. The prototype consists of a store footprint of about 8,000 square feet located in select upscale malls and lifestyle centers.

Also at the meeting, Coldwater announced the launch of a luxury Web site called Galleryatthecreek.com, providing high-end online shopping targeted at Coldwater customers whose income is $100,000 a year or greater. The site will feature unique or limited production items of art produced by artists and designers from around the world. "We believe this Web site could be a very exciting addition to the Coldwater retail portfolio and a source of potentially significant additional revenue for the company," said Johnson.

For its bricks-and-mortar strategy, Coldwater plans to spend $1.4 million per store, including leaseholds, fixtures and inventory. Initial results for Coldwater's existing eight stores have been excellent, Johnson said.

"We believe the synergies between Coldwater's catalog marketing, Web site and retail stores offer a strong complementary platform for continued excellent growth," she said. "We expect Coldwater to have nine retail stores in place by Thanksgiving and we now expect the company to add 12 to 15 new stores each in 2001 and 2002 with a longer-term goal of 80 stores in the U.S."

52-week high: $89
52-week low: $2.87

Market perform. Steve Weinstein of Pacific Crest recently initiated Avenue A with a "market perform" rating, citing the "long and winding road" ahead for Web companies attempting to make it in the current online ad environment. Avenue A dropped nearly 5 percent Thursday, in sympathy with 24/7 Media's 36 percent plunge on news of disappointing third quarter results and employee layoffs.

"We expect the combined effects of the dot-com shakeout and company-specific transition to last into the first half of fiscal year of 2001," Weinstein said. He lowered fourth quarter revenue estimates from $53 million to $47 million. He also lowered FY01 revenues estimates from $267 million to $243 million to reflect decelerating client growth. He noted that Avenue A was able to increase traditional (non dot-com) clients to 52 percent in Q3 compared to 45 percent in Q2.

"We will become more positive on the stock when the online ad environment improves and we continue to see signs of increasing penetration with traditional clients and alliances with large agencies," Weinstein said.

Previous columns:

• Avocent expands with global computing, 11-03-2000
• Amazon remains a credible biz model, 10-27-2000
• Lattice Semi sustains top-line growth, 10-20-2000
• Costco stays afloat amid retail wreckage, 10-13-2000
• WaMu increases share in mortgage biz, 10-06-2000
• Cell Therapeutics soars on FDA approval, 09-29-2000
• ESI poised for growth in electronics, 09-22-2000
• SonoSite has first-mover advantage overseas, 09-15-2000