August 4, 2000

Cell Therapeutics excels with cancer drug

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

Stock prices reflect Thursday's close. The Dow gained 19 points to 10,706, while the Nasdaq jumped 101 points to close at 3,759. The S&P 500 rose 13.86 points to 1,453.

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: $52
52-week low: $1 5/16

Strong buy. Cell Therapeutics received a boost this week when its novel cancer drug treatment, Arsenic TriOxide (ATO), was granted orphan drug designation by the FDA for treatment of Myelodysplastic Syndromes (MDS).

Peter Ginsberg of U.S. Bancorp/Piper Jaffray said ATO has also received fast-track designation by the FDA, making FDA approval likely. "Cell Therapeutics is poised to become the next commercial cancer-focused biotech company," said Ginsberg.

MDS, or pre-leukemia, are diseases in which the bone marrow does not function normally and not enough normal blood cells are made. The orphan product designation encourages drug makers to develop drugs for patients with rare diseases.

Patients in ATO trials were expected to live a median of two months with standard therapy, but with ATO more than half the patients remain disease free after more than 18 months, Ginsberg said.

"We expect Cell Therapeutics to reap domestic ATO sales of $7.1 million in 2001, $34.1 million in 2002 and $73.5 million in 2003, with peak domestic sales forecasted to reach $150 million," he said. "ATO's expected near-term approval and Cell Therapeutic's promising pipeline compounds encourage us to initiate coverage with our 'strong buy' and a $44 price target."

52-week high: $38 1/2
52-week low: $18

Neutral. Safeco stock jumped 14 percent Thursday on news that CEO Roger Eigsti will resign at year-end, and Randy Stoddard, president of Safeco's insurance operations, resigned effective immediately. Safeco's president and COO Boh Dickey will take over Stoddard's duties and may be a candidate for the position permanently.

Salomon Smith Barney's Ronald Frank said management changes are not a "silver bullet" for Safeco's problems. He said Salomon remains concerned about personal auto sector, to which Safeco has large exposure.

"We maintain our 'neutral' rating on Safeco," Frank said. "It is unclear what significant additional steps can or will be taken under a new management regime, and we remain concerned about the personal auto environment."

52-week high $67 1/2
52-week low: $4 11/16

Strong buy. Management's moves to achieve profitability by 2003 and an increasing rate of repeat orders are encouraging signs, according to Pacific Crest's Steve Weinstein.

Second quarter revenue increased 8 percent from the previous quarter to $24.6 million from $22.7 million -- about $1.5 million less than Pacific Crest expectations. The revenue shortfall was the result of television advertising not being as effective at driving sales as expected. The company ended the quarter with about $122 million in cash. "We believe this represents sufficient cash for the company to fund the business into Q4 of 2001," Weinstein said.

Pacific Crest is lowering its revenue estimates for 2000 by $8.9 million to $103 million and lowering operating expenses by $20 million to $178 million to reflect Drugstore's change in business strategy.

"We believe management is making the proper adjustments to its business strategy in light of tighter capital markets," said Weinstein. "While we believe that the impact of less access to capital and slower growth is already worked into the price of the stock, with the prospect of profitability still several years out, investors in Drugstore need to have a long-term investment horizon."

52-week high: $34 1/2
52-week low: $16 9/16

Neutral. In advance of Nordstrom reporting second quarter earnings on Aug. 16, Dain Rauscher's Bob Toomey has reduced his rating to "neutral" from "buy."

Nordstrom on Thursday reported that same store sales for July slid 9.7 percent from July 1999. Preliminary 2000 year-to-date sales of $2.6 billion increased 4.6 percent compared to 1999 year-to-date sales of $2.48 billion. Full-line same store sales increased in the Southwest and East Coast regions, and declined in the Northwest and Central states regions.

Nordstrom's announcement on July 28 that its second quarter earnings would fall short of expectations drove the stock down and analysts quickly revised ratings. Dain Rauscher was looking for earnings of $0.54, but the company preannounced a shortfall of $0.04 to $0.06. "We think the EPS shortfall was the combined result of slower-than-expected sales, above plan markdowns, higher selling costs and strategic spending initiatives," said Toomey.

Slower spending trends have impacted Nordstrom's strategies to improve revenues, and could slow recovery of EPS, he said. "However, we do not believe this derails the long-term benefits of the wide-ranging strategic improvement program," he said. "We believe JWN stock offers good values below $20, however, we think JWN stock performance will remain subdued for the next couple of quarters. We would accumulate on pullbacks to the $16-$17 range."

52-week high: $65 7/8
52-week low: $13

Buy. Recent fourth quarter results revealed "upside everywhere" for the online travel site, according to Pacific Crest's Steve Weinstein.

Revenue was $69.9 million compared with the firm's estimate of $61 million -- up 19 percent from $58.8 million in the third quarter. Operating expenses were $36.4 million, down 8 percent sequentially and almost $4 million less than the $40.3 million Pacific Crest had modeled.

Pacific Crest raises its fiscal year 2001 revenue projections from $304 million to $322 million. "In our view, Expedia is uniquely positioned to create a leading e-commerce marketplace for travel and destination services," said Weinstein. "The company has secured the capital to reach profitability in fiscal year 2003 and is ahead of the competition in implementing a merchant model that creates a proprietary product and significantly higher profitability."

52-week high: $75 1/4
52-week low: $31 3/8

Buy. Western Wireless recently reported a strong quarter as subscriber growth and roaming revenues exceeded expectations at Salomon Smith Barney. The company reported 48,600 net additions, which exceeded the Salomon's forecast by nearly 16 percent.

Salomon analyst Michael I. Rollins sees growth in the areas of rural acquisitions and organic expansion, new services such as residential wireline replacement services and further investments in its international portfolio.

"Western is evolving its strategy to be a vertical service provider in its region, recognizing that its customers have been under-served by both wireline and wireless carriers historically," Rollins said. Internationally he sees Ireland as "a diamond out of the rough," as Western prepares for a fourth quarter launch there.

"We maintain our 'buy' recommendation and our year-end 2001 target price of $75 a share," he said. "The business fundamentals remain strong and upside potential to our forecasts and valuation can be created with its emerging segments."

Previous columns:

• InfoSpace more attractive with Go2Net acquisition, 07-28-2000
• Lattice Semi leads with logic devices, 07-21-2000
• Northwest Stock Report, 07-14-2000
• Expeditors finds growth in global logistics, 07-07-2000
• 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