June 23, 2000

Primus leads in its e-business field

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

Stock prices reflect Thursday's close. The Dow slid 122 points to 10,376, while the Nasdaq dropped 127 points to 3,937. The S&P 500 closed down 27 at 1,452.

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

Primus Knowledge Solutions, Corp.
(PKSI, $52 5/8)

52-week high: $137 1/4
52-week low: $14

Buy. U.S. Bancorp/Piper Jaffray recently initiated coverage of Primus Knowledge Solutions with a "buy" rating and 12-month target of $60.

Primus is a leading provider of e-CRM (customer relationship management) software that enables companies to manage points of contact with their customers across multiple communication channels -- the Web, e-mail, chat and voice.

"We observe massive demand for managing e-business customer relationships," said US Bancorp's Sarah Bernstein. "We are at the beginning of a revolution in Web-based customer marketing, sales and service. Market growth estimates range from CRM total market of $10.4 billion by 2003 to $17 billion in total revenues for Internet commerce software vendors. These growth rates are being driven by fundamental changes in business interactions and expectations created by the Internet."

Primus Knowledge has more than 130 customers worldwide, adding 16 customers in the first quarter of 2000. Technology, telecommunications and Internet service providers account for about 75 percent of the company's total revenues. Aerospace, manufacturing and other sectors comprise the remaining 25 percent.

Competition from larger vendors and an economic slowdown are cited as risks to the stock. But Bernstein said there is a high potential growth rate.

"Primus Knowledge is a leading vendor in its core, problem resolution/knowledge management sector and a strong contender in the rapidly growing e-CRM market," she said. "PKSI is establishing a leading position in e-customer service and is adding additional e-CRM functionality through acquisition and in-house development."

Starbucks
(SBUX, $35 13/16)

52-week high: $45 1/4
52-week low: $19 7/8

Strong buy. Sales trends in recent months remain strong, and Pacific Crest's Laura Richardson sets a 12-month price target of $40.

"The overall tone of business is positive," said Richardson. "We are struck by the success with and scope of opportunity for Starbucks in grocery stores and abroad."

She notes that sales in Starbucks coffee bars in Albertson's are doing very well. Both store counts and sales volumes are well above plan, with the potential for many more locations in Albertson's and other major markets. "We see attractive licensing economics for Starbucks, and positive for Starbucks supermarket product sales," she said.

International stores are also performing well, and there is potential for acceleration of store growth targets in Asia.

Watchguard Technologies
(WGRD, $58 7/8)

52-week high: $125 1/3
52-week low: $10 3/8

Accumulate. Ragen MacKenzie analyst Jonathan S. Geurkink said PC Magazine's Editor Choice Award this month for Watchguard will likely have a "significant impact on purchasing decisions."

The stock also received a boost this week after Secure Computing Magazine bestowed it with a "best buy" designation for its Soho firewall and VPN solutions.

Watchguard provides comprehensive Internet security solutions to protect small- and medium-sized enterprises using the Internet for electronic commerce and communications.

Geurkink notes that Watchguard beat out competitors such as CheckPoint, Cisco and SonicWall for the PC Magazine award. Watchguard was noted for products with ease of use, maintenance and deployment.

Amazon.com
(AMZN, $42)

52-week high: $113
52-week low: $40 7/16

Accumulate. Ragen MacKenzie recently initiated coverage of Amazon with an "accumulate," based on its leading online retailing position, strong growth potential and ability to attract and retain customers.

Based on 1999 total online retail sales of about $30 billion, Amazon had about 5 percent market share of online sales, according to analyst Allyson Rodgers.

"As Amazon continues to build out its product categories, as well as its international presence, the company is positioning itself to become a premier online retail navigational platform," Rodgers said. "Amazon.com should be able to maintain its share of online sales through product category expansion and by 'renting' retail space to other online businesses that prefer to function as part of Amazon's customer shopping experience."

Amazon began 1999 with a customer base of 6 million, and ended it with a base of 17 million customers. In the first quarter of 2000, Amazon reported a customer base of 20 million.

"Not only has Amazon added an incredible number of customers, but it has shown that the customer base is loyal and with a repeat purchase rate of 76 percent in its most recent quarter, up 66 percent from 1Q99," she said. "New and existing customers continue to shop at Amazon due to its expansive product offerings, ease of use and reliability of service."

The stock on Thursday closed near its 52-week low.

Boeing
(BA, $38 15/16)

52-week high: $48 1/2
52-week low: $32

Strong buy. Shares of both Boeing and Lockheed Martin were down slightly Thursday, after an announcement from the Department of Defense that it will use a "winner takes all" approach with the $200 billion to $400 billion contract to replace the F-16 and other planes. The Pentagon is expected to make the choice next spring.

Good news for Boeing, however, came this week in the form of an analyst's prediction that competitor Airbus would fail to turn a profit for a long period on its proposed 555-seat A3XX mega-jet. For years, Boeing has had a monopoly on the 400-seat category with the 747. The A3XX is expected to deliver in 2005, but the report claimed that Airbus would not turn a profit as much as 20 years after that.

Dain Rauscher analyst Bob Toomey said Thursday the Department of Defense announcement was no surprise, and he maintains a positive outlook for Boeing's defense business. He gives the stock a 12-month target of $56.

Boeing earlier this month formalized an agreement to develop and manufacture 13 RAH-66 Comanche helicopters in a joint venture with the Army. The six-year contract is worth $3.1 billion, and is part of the Army's modernization plan to purchase $38 billion worth of the new-generation helicopters in the next 24 years. Boeing also won a $9 billion contract from the Navy for five F-18E/F fighters.

"Our positive outlook for Boeing's defense business is supported by Boeing's adaptation of advanced technologies, which we believe will allow the company to continue to leverage cost savings and enhance operating margins," Toomey said. "We continue to view Boeing stock as very attractive for purchase based on low valuation, improving margins and cash flow and production rates in 2001."

SonoSite, Inc.
(SONO, $27 3/4)

52-week high: $37 3/4
52-week low: $15 1/2

Buy. Laurel Johnson of Dain Rauscher sees significant upside potential in SonoSite. Dain Rauscher this week initiated coverage this week and set a 12-month price target of $42.

SonoSite is the leader and first to market a new class of hand-held diagnostic ultrasound devices. Johnson believes the company is well ahead of any other potential entrant in terms of market presence and product functionality.

"SonoSite has a strong management team," said Johnson. "CEO Kevin Goodwin, Chief Technology Officer Jens Quistgaard and head of manufacturing operations Brad Garrett all had extensive and successful tenures at ATL Ultrasound, building a strong experience base in marketing, technology and operations. We believe SonoSite has the potential to achieve earnings per share of $1.40 in 2002 and $2.35 in 2003 based on successful execution and a modest physician adoption rate."

Previous columns:

• Tektronix moves into high growth markets, 06-16-2000
• Nike maintains a strong foothold, 06-09-2000
• Esterline lifted by aerospace biz, 06-02-2000
• RealNetworks builds on market leadership, 05-26-2000
• DJC Northwest Stock Watch, 05-19-2000
• Northwest Stock Report, 05-12-2000
• Northwest Stock Watch, 05-05-2000
• NW stock watch, 04-28-2000