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Technology Stocks : LSI Corporation
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To: thomas hayden who wrote (8753)12/29/1997 2:19:00 PM
From: john dodson  Read Replies (1) of 25814
 
Thoughts on Lehman's 12/23/97 LSI report:

1. "PROJECTIONS DOWN. Discussions with management towards the end of the quarter plus the ongoing negative impact of Asia/Pacific leave us increasingly concerned by short-term prospects at LSI. We now believe sales will decline slightly in 4Q vs. 3Q and margins fall more than previously anticipated."

Should we believe this, the "discussions with management" part sounds like LSI has guided Lehman's analysts to expect a weaker than generally expected quarter. It struck me as odd that Lehman is considerably more negative on 4Q prospects for LSI than are the rest of the analysts following LSI. Given the disclosure that Lehman underwrote an LSI public offering, and a Lehman employee is a director on LSI's board, this does not sound too positive.

Additionally, given that LSI earned $326.8 Mill in 3Q with a 13.6% profit margin, Lehman's estimate of 0.19 cents a share net gives a ball park earnings of 141.67 Mill shares x .19 cents = $26.9 Mill. $26.9 Mill / $315 Mill (reduced sales) = 8.5% profit margin. 4Q last year (1996) LSI had a 10.1% profit margin. So, it seems that Lehman thinks this 4Q will be even worse than last year's.

2. "However, we believe the short term direction of the stock is still lower since consensus projections remain well above the likely reality."

Another hint here that Lehman's LSI views are substantially worse than the consensus for 4Q. I almost sense that they're implying that other analysts are deliberately taking an overly-optimistic view of LSI's 4Q even though it's very likely that the numbers will prove them wrong. This doesn't make much sense to me. Why would the other brokerages be so willing to do this when Lehman is not? Something doesn't mesh here.

Could Addi's analyst conspiracy theory explain this? Maybe they're just trying to protect their big clients by setting low expectations for 4Q, so that they can upgrade in 1Q 1998?

-John Dodson
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