Markets & Finance

Avery Dennison Shares Downgraded


Avery Dennison (AVY): Downgrade to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Richard O'Reilly

Co. expects disappointing early '01 amid a slowdown in U.S economy, plus on impact of planned store closings by office product retailers. Sees Q4 sales down about 1% instead of expected modest growth, hurt by downturn in U.S. industrial market despite unusually strong sales in office products segment. Cutting our Q4 EPS est. to $0.67 from $0.70, '00 to $2.83 from $2.86. trimming '01 to $3.00 from $3.15, though see flattish 1st half. AVY taking added cost cut steps, including layoffs, and remains solid co. selling at 17x '01 est.

Barrett Resources (BRR): Initiate coverage with 4 STARS (accumulate)

Analyst: Ephraim Juskowicz

With 95% of its reserves consisting of gas, all in U.S., and high reserve life, BRR shares poised to benefit from widely held belief that future domestic gas fundamentals will remain strong. 80% of its gas production is from Rockies, seen as last gas area largely untapped. BRR major producer of coal-bed methane gas. With low 5-year average all-sources finding & development, G&A, and production costs, BRR deserves its premium multiple. Stock attractive at 5.6 times estimated '01 discretionary cash flow per share.

Guidant (GDT): Reiterate 4 STARS (accumulate)

Analyst: Robert Gold

Co. sees Q4 revenues hurt by shortfall in U.S. sales of implantable defibrillators and by negative forex. will trim EPS below $0.43 consensus. Not surprised, given that certain financial engineering allowed GDT to meet Q3. Leaving our already below-consensus Q4 est. at $0.41, and maintaining '01 at conservative $1.85. Upcoming quarterly revenue and earning streams could be choppy, but look for GDT to outperform on new product launches, favorable clinical trial results, stent share gains and benefits from more favorable Euro/US dollar ratio.

Copper Mountain (CMTN): Reiterate 2 STARS (avoid)

Analyst: Ari Bensinger

Co. warns of lower Q4 revenue. Sees Q4 revenue $46-$49 mln., below our $60 mln. estimate. Reflects continued weakened spending from competitive local exchange carriers and decision not to recognize $8 mln. in shipped equipment because of customer's financial uncertainty. With highly concentrated customer and product base, CMTN very dependant on competitive local exchange carrier market. needs to diversify customer base to incumbent telecom service providers. Lowering our '00 EPS estimate to $0.69 from $0.77. Given weak CLEC market, avoid CMTB.

Evergreen Resources (EVG): Initiate coverage with 5 STARS (buy)

Analyst: Markos Kaminis

Pure-play natural gas exploration & production company is attractive low-cost producer with long-lived reserves. Valuing co. using various methodologies, we comfortably expect shares to outperform market. Recent acquisition of peer Pennaco supports our best-case scenario. Attractive supply/demand dynamics for gas should allow significant production ramp and growth in discretionary cash flows and EPS for next 3 to 5 years. We forecast more than doubling of EPS in '01, to $1.75.

Pharmaceutical Product Development Inc. (PPDI): Initiate coverage with 4 STARS (accumulate)

Analyst: Herman Saftlas

Leading provider of contract R&D services for drug and biotech companies is outperforming overall contract research industry, helped by expertise in cutting-edge functional genomics, informatics. Increasing partnerships with clients that offer equity, profit-sharing in new drugs. Recently licensed dapoxetine, experimental drug for premature ejaculation, to ALZA. See EPS growing 32% to $1.68 in '01. follows indicated 25% gain in '00. PPDI attractively valued at 25% discount to peers.


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