July 7, 2000

Expeditors finds growth in global logistics

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

52-week high: $48 3/4
52-week low: $27

Strong buy. While the economy may be slowing, import and export volumes will continue to grow at low- to mid-double-digit rates through 2000 -- helping transportation services companies such as Expeditors International.

Seattle-based Expeditors is a global logistics company, providing air and ocean freight forwarding, as well as customs clearance services and marine insurance. Expeditors and others in the third-party logistics sector are influenced by strength in the domestic and global economy, which drives transportation volumes.

U.S. Bancorp/Piper Jaffray analyst Stephen Jacobs said port volumes and air cargo traffic will see modest growth through 2000, gaining strength in the long term.

"We believe over the next three to five years, Expeditors will grow its earnings at an annual rate of 20 percent to 25 percent as it continues to leverage its franchise to gain further share in the international logistics market and as companies outsource their logistics needs to Expeditors," said Jacobs. "We believe the international freight market will remain strong in 2000, as we expect international freight volumes will continue to grow this year. We also anticipate Expeditors will grow net revenues faster than its end markets by continuing to increase its market share."

He predicts an annual earnings growth rate of 20 percent to 25 percent.

52-week high: $27 7/8
52-week low: $17 3/4

Outperform. While warm temperatures in the spring have prompted Salomon Smith Barney to reduce Northwest Natural Gas's second quarter earnings outlook, analyst Joanne Fairechio said the company's growth rate is above industry average. She sets a 12-month price target of $28.

"Customer growth continues to be strong in Northwest Natural's service territory, highlighted by strength in the multi-family new construction and single family conversion markets," said Fairechio. "The combination of a winter advertising campaign, a new program that offers finance options for furnace installations and high oil prices have helped the company to maintain its above-average growth rate."

With this region's population growth rate twice the national average, Northwest Natural stands to capitalize on a five percent per year growth in its customer base, Fairechio estimates.

"There are a number of initiatives that will help Northwest Natural grow during the next few years, including the expansion of its underground storage facilities to meet the needs of its growing customer base, new storage services for other Northwest natural gas providers and new distribution service to Coos County, Ore.," she said. "Northwest Natural could be a major storage player in the Northwest."

52-week high: $111
52-week low: $19 1/2

Buy. An Internet connectivity provider, InterNap is poised to take advantage of "one of the economy's hottest sectors in the coming years," according to Adam Hamilton of McAdams Wright Ragen, Inc.

"As the InterNap network grows -- in terms of reach, capacity and customer count -- it becomes more efficient and, by extension, a more attractive connectivity option for potential customers," said Hamilton.

Hamilton said the delivery of Internet through wireless devices also bodes well for InterNap. "A future driver of growth at InterNap may well be the addition of wireless carriers and service providers as customers -- a likely scenario in that these players are currently seeking to seamlessly link their networks to terrestrial back-bone networks. InterNap is executing quite well, and the value proposition for their customers seems to be growing stronger."

52-week high: $19 3/4
52-week low: $6 5/16

Market perform. In the wake of last month's lowered expectations for fourth quarter earnings, management's correction strategy is encouraging news, according to Pacific Crest's Steve Weinstein.

Increased costs at a new distribution center and a 5 percent drop in sales to the golf channel were cited as reasons for the earnings disappointment. But the company has decreased its temp workers, improved timing of liquidations and kept inventory clean, Weinstein said.

"We are encouraged by Cutter & Buck's quick response to developing problems and optimism for future growth," said Weinstein. "Valuation is attractive, trading at six times 2001 earnings per share and 50 cents below its book value. However, we caution that there is still risk in the stock as management executes its correction strategy."

52-week high: $54 7/8
52-week low: $23 1/16

Market perform. Like Kroger Co. and Safeway, Albertson's has seen a nice lift since its March slump -- an indication of a broadening market.

Pacific Crest's Laura Richardson attributes the rise in supermarket stocks to economic defensiveness, attractive valuations, sound fundamentals and the demise of so many dot.coms in recent months.

"We are more positive about supermarkets than most other retail names now," said Richardson. "Among supermarkets, we continue to prefer Kroger (KR) and Safeway (SWY), although we have been warming to Albertson's." She gives Safeway and Kroger a "strong buy" recommendation and Albertson's a "market perform."

52-week high: $59 1/4
52-week low: $25 13/16

Strong buy. Nike last week reported fourth quarter revenue increased 4.1 percent, well ahead of Dain Rauscher's estimate of 2.5 percent, according to analyst Bob Toomey.

"We attribute the margin improvement to Nike's success in improving manufacturing and distribution costs as well as its outlet store strategy, which has enabled it to significantly improve and control margins on close-out or excess inventory," said Toomey.

Nike's U.S. apparel provided the upside surprise, while U.S. footware sales slagged unexpectedly.

"We attribute the improving apparel outlook to Nike's intense efforts during the past year to better differentiate its apparel products, as well improve positioning/presentation and its segmented channel strategy," he said. Weakness in the footware sector should turn around, with good inventories and new product introductions. "With its new products, we believe Nike can maintain its strengths in traditional higher-margin performance footware."

Previous columns:

• Online travel site rated a buy buy, 06-30-2000
• Primus leads in its e-business field, 06-23-2000
• 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