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Technology Stocks : Novellus
NVLS 2.400+2.1%Jul 24 5:00 PM EST
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To: Mike Gordon who wrote (2322)7/20/1999 12:18:00 AM
From: A. Edwards  Read Replies (2) of 3813
 
NOVELLUS INVESTORS SPOOKED BY A SHADOW:

Merrill Lynch & Co.
19 July 1999
Mark F. FitzGerald, Vice President
Thomas R. Diffely, Industry Analyst
Reason for Report: 2nd Quarter Earnings Announcement

Investment Opinion: B-1-1-9
12 Month Price Objective: $100

Investment Highlights:
· NVLS reported an in-line quarter. We are increasing revenue and EPS estimates for the next two quarters. Our new FY'99 estimates are $548 million and EPS of $1.59 versus $538 million and $1.47. FY'00 EPS projections of $3.34 remain the same.
· Bookings were the big story in the 2Q'99. We estimate that bookings totaled $170 million versus last quarter's $150 million. Bookings in the September quarter will likely increase 10% sequentially and possibly surpass the record quarter of $197 million. The 2nd quarter estimated B:B ratio was 1.3.
· We believe that the stock sold off after the conference call because of management's expectations. Management stated that they were on track to beat 3Q'99 "Street" estimates of $0.43; revenues should grow >10% sequentially. But their management for the 4th quarter was for a 3-5% revenue increase. We believe the modest growth in the 4th quarter expectations is fueling fears that the company's business is flattening out.
· We do not agree with management's 4th quarter revenue expectations. The bookings outlook over the next four months suggests closer to the 8-10% growth we are modeling. We think these expectations reflect management's conservatism.
· We maintain our 12-month price objective of $100 assuming a 30 multiple on CY'00 EPS estimates of $3.34.
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