December 1, 2000

Planar's panels display profit potential

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

Stock prices reflect Thursday's close. The Dow lost 215 points to close at 10,414, while the Nasdaq gave up 109 points to close at 2,598. The S&P 500 lost 27 to close at 1,315.

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: $25.50
52-week low: $5.25

Strong buy. Dain Rauscher's Bob Toomey recently initiated coverage of Planar Systems, citing high-teens top-line growth in the next three years for the Beaverton, Ore.-based company. Planar makes flat panel industrial displays used in medical equipment, aircraft cockpits, office copiers and industrial controls.

However, he warned that one risk for Planar could be a "severe slowing" in the global economy, which could result in slowing of capital spending and product development in the company's target market.

"Planar is focused on three target markets: medical, industrial and transportation," Toomey said. "Together, these industries comprise a $1 billion subset of the total flat panel display market. The need for customized and outsourced solutions is increasing because of the growing interconnectivity and mobility of devices and increasing complexity of display technologies."

Key applications in the industrial market include the growth of kiosks, such as gasoline pumps and ticketing kiosks, which increasingly use flat panel displays, he said. Thirty-one percent of Planar's revenue is from the transportation market, which is being driven by increasing use of driver information systems and mobile connectivity in the trucking industry. Planar also entered the high-volume commercial market for desktop flat panel PC monitors by striking a deal to supply Dell Computer.

Toomey said Planar has also brought in a new management team to design and implement a new strategy which includes exiting its money-losing military displays business. The company has a "new culture of fiscal and financial discipline," he said.

He noted that the recently completed fiscal year 2000 operating EPS showed that revenue grew by 38 percent driven by strong demand in each of Planar's three end markets. Operating EPS improved to 67 cents for FY00 -- a substantial increase from FY99's loss of 2 cents a share. Gross margin improved to 28 percent.

While a slowing global economy and the possibility of competition from Asian electronics companies could pose risks, Toomey said Planar is prepared. "We believe mitigating factors for Planar would be its niche strategy to provide custom applications and it's already developed strong and efficient supply chain infrastructure." He set a 12-month price target of $30.

52-week high: $27.25
52-week low: $20.31

Buy. In times of economic uncertainty, Shurgard Storage offers a safe haven for investors with modest growth expectations, according to Paul Latta of McAdams, Wright, Regan. In the storage business, they say things at rest tend to remain at rest -- an adage that "goes straight to the heart of why the earnings in the storage industry are so stable and predictable, in good times and bad," said Latta.

A real estate investment trust, Seattle-based Shurgard develops, buys, owns and operates 411 self storage centers in the U.S. and Europe, with more than 20 million square feet of rentable space. Shurgard also manages 30 third-party storage centers and a business park with 2 million rentable square feet.

The company's recent third quarter results showed same store revenue and income in the U.S. increased 7.7 and 7.6 percent, respectively, while European same store sales jumped 17 percent. Management expects to expand to 48 locations in Europe by year's end.

"Shurgard has an attractive valuation based on a number of metrics," said Latta. "The company's real estate has appreciated well above its book value. We estimate Shurgard's net asset value to be about $31 per share."

He added that the stock should provide "decent" upside potential. "Over the last several years, the stock has traded as high as $30," said Latta. "Perhaps with the implementation of the company's growth initiatives, and some cooperation on interest rates, Shurgard can once again trade at or even above $30."

52-week high: $111
52-week low: $9.75

Strong buy. Cynthia Houlton of Dain Rauscher recently slashed her 12-month target on InterNap from $35 to $19. She said EBITDA losses (earnings before income tax and depreciation allowance) could peak in the December quarter, one quarter ahead of Dain Rauscher's previous published estimate.

The company has scheduled a Dec. 14 conference call to provide guidance and a "detailed revised business plan that outlines how the company will reach profitability with its current cash resources and vendor financing," she said.

Based on a revised business plan, positive sales momentum and accelerated path to profitability, Houlton said she maintains her "strong buy" on the company. At $19 a share, the stock would trade at a multiple of 14 times next year's earnings, "which we believe is consistent with its proprietary technology-based service." She noted that InterNap at the end of the third quarter had a cash balance of $182 million.

52-week high: $113
52-week low: $19.37

Market perform. Coming off the worst monthly performance for Internet stocks ever (a more than 40 percent decrease in the Goldman Sachs Internet Index), Amazon closed November at a two-year low. Going forward, Pacific Crest's Steve Weinstein see challenges for the e-tailing giant this Christmas season.

Pacific Crest recently ran a survey testing the availability of toys recommended by Family PC magazine -- to see how the Amazon/Toysrus.com collaboration stacks up against Etoys.

Pacific Crest found Amazon had only 36 percent of the listed toys in stock, compared with 73 percent for Etoys.

"While we are not changing our estimates based on this information, it does imply that the opportunity this season is somewhat limited and that Amazon's objective of complete customer satisfaction and creating the only place a customer needs to shop is still a work in progress," Weinstein said. "The Amazon/Toysrus.com combo is still not enough."

52-week high: $50.81
52-week low: $23.12

Buy. Salomon Smith Barney this week introduced fiscal 2002 EPS estimates for Starbucks. Analyst Mark Kalinowski projected earnings of $1.15, representing 25 percent growth off FY01 estimates of 92 cents. The 25 percent rise matches Smith Barney's long-term annualized EPS growth forecast, and is within the 25-30 percent range management has communicated to the street.

The latest scanner data regarding sales at retail channels for the four weeks ended Nov. 5 show that sales of Starbucks coffee continue to be up by triple digits year over year. Ground regular posted 149 percent volume growth, ground decaf came in at 133 percent and whole bean increased 106 percent. While the company continues to gain market share in the coffee category, frappuccino sales were not as perky, posting a 9.6 percent decline year over year. Ice cream lost 12 percent and ice cream bars were down 26.5 percent in volume sales.

In addition to raising FY02 EPS estimates, analyst Mark Kalinowski raised the 12-18 month price target from $50 to $60. "We view a 25 percent premium on a P/E-to-growth basis as not unreasonable, nor do we believe a 2.3 times relative valuation to the S&P 500 is out of the question," he said.

52-week high: $50.50
52-week low: $10.68

Strong buy. Advanced Digital recently announced that it is qualifying Quantum's SuperDLTape for use in its entire line of automated tape libraries, which further expands the company's partnership with Quantum. "We believe the deployment of new technology will drive incremental demand," said Bob Toomey of Dain Rauscher.

The storage solutions provider also recently announced an original equipment manufacturing agreement with Eastman Software, a leading e-business software solutions provider. The announcement speaks well for the capabilities of Advanced Digital's technology in key core markets, Toomey said.

"This leverages ADIC's integration into enterprise storage infrastructure," he said. "We highlight the stock as our best idea, and would be aggressive buyers at current prices."

52-week high: $64.37
52-week low: $21.25

Buy. For his Internet stocks holiday shopping list, Pacific Crest's Steve Weinstein cited Getty Images (along with DoubleClick and Ebay) as attractive for their valuations and profit potential.

"We believe the market's recent downturn has created an opportunity for investors to build positions in companies with strong fundamentals, sustainable growth and compelling valuations," he said. Getty is positioned to rally in a market turnaround because of brand leverage and market share.

"As the market bounces back, we believe the industry leaders will be the first to recover," Weinstein said. "Getty is a business that leverages the Internet as a low-cost distribution channel." He said a combined portfolio of Getty, Ebay, DoubleClick, Travelocity and CNet Networks would yield 84 percent in the next 12 months.

Previous columns:

• Nordstrom may face "subdued" holiday, 11-17-2000
• Expeditors beats the Street, but trades high, 11-13-2000
• 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