Still Buy Genentech on Strong Pipeline

Genentech (DNA ): Maintains 5 STARS (buy)

Analyst: Frank DiLorenzo

Genentech announced that the FDA won't hold an Advisory Committee meeting in April to review its Xolair treatment for allergic asthma and rhinitis. The next scheduled review is possible in September. S&P speculates that the FDA needs more time to review additional data for Xolair. The regulator has clearly become significantly more cautious in reviewing drugs from all companies. As a result, drug launches may be later than previously expected. S&P anticipates a Xolair launch by the end of 2001. With one of two of the best pipelines in the biotech industry, Genentech is attractive at a discount to its peers based on price/sales and P/E.

Waste Management (WMI ): Maintains 4 STARS (accumulate)

Analyst: Stewart Scharf

The waste-management services firm posted $0.29 Q4 (pro forma) EPS (before $0.23 unusual costs) is slightly below expected. Adverse weather impacted EPS by $0.02. Volume is up fractionally and pricing is up 1.3%. Divestitures are complete and debt has been reduced by $3.3 billion. Waste Management is targeting debt-to-capital below 60% by yearend. Amid soft economic conditions, S&P expects internal growth of 2%-4% for 2001, reflecting weak volume and weak recycling-commodity prices. However, S&P sees new information systems aiding efficiencies. S&P sees EBITDA exceeding $3.4 billion, and sees free cash flow of $1 billion. The shares are trading at 19 times S&P's $1.40 estimate for 2001.

Tellabs (TLAB ): Reiterates 4 STARS (accumulate)

Analyst: Ari Bensinger

Tellabs sees Q1 sales at $830-$865 million and EPS of $0.35-$0.38, slightly below prior guidance of $865-$890 million and $0.39 EPS. This reflects slower sales of Cablespan products and a revenue recognition delay from the new Titan 6500 optical switch. The company expects a significant Titan 6500 order shortly. Despite the difficult environment, its core optical networking business remains strong. With several promising products on tap, Tellabs confirms 2001 sales growth at 30%. S&P is prudently trimming its 2001 estimate by $0.04 to $2.12. Shares remain attractive at a P/E under one times its long-term growth.

Yahoo! (IBM ): Maintains 3 STARS (hold)

Analyst: Scott Kessler

Halted for all but seven minutes of the trading day on Mar.7, Yahoo! resolved its conjecture seven hours later. Most importantly, the Internet media company now sees Q1 revenues of $170-$180 million, significantly lower than our estimate of $228 million. In addition, Yahoo! sees Q1 EPS at breakeven vs. its prior estimate of $0.05. Based on the firm's limited Q2-Q4 visibility, S&P is putting its estimates under review for downward revisions. S&P sees the launch of a search for a new CEO as poorly timed, as well as an indication that leadership for a new kind of dot-com is needed.

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

Analyst: Ari Bensinger

As part of a restructuring plan, the provider of DSL services will eliminate 25% of its 450-member workforce. The firm also will reduce its target sales, customer service, operations, and general & administrative support. This will result in a Q1 charge of $5 million to $7 million. The cutbacks reflect weakened spending from competitive local exchange carriers (CLEC) and the deteriorating domestic economy. Copper Mountain also announced the resignation of its chairman and CFO. The firm needs to diversify its customer base to incumbent telecommunication service providers. Given the weak environment and executive shake-up, S&P would avoid.

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