Good Wednesday Morning - Comments From The Local
Guys!

The market is, at this stage, only focusing on the negatives in the
marketplace. The perception that this war on terrorism will be long and
protracted - with the potential short-term impact to the economy being
deeper than prior to September 11th. However, the pace of economic spending
by the administration may hasten the end of the economic downturn. Hang in
there.

IMPACT CALLS

M&T Bank Brock Vandervliet

Upgrade to 2-Buy, Compelling Valuation 2 - Buy / $67.16 (USD)
We are upgrading MTB from 3 Market Perform to 2 Buy, based on valuation and
solid fundamental
performance. Our estimates and target price are unchanged.
Going forward, we expect MTB to generate EPS growth of 11%, significantly
better than the 8% group
overall.

Banks - Citibank Henry Chip Dickson
Citi Previews Stronger than expected 3Q
Citi Previews Stronger than expected 3Q
The September 11th Disaster is expected to reduce Citi's 3Q01 results by
$0.12-$0.14.
Citi had expected to earn $0.77 for 3Q01, $0.02 better than consensus
expectations despite a
deteriorating economy and a challenging market environment.
The sources of 3Q strength appear to be many of the Consumer businesses,
Emerging Markets, Fixed
Income and productivity gains.
Based on the guidance, a weakening economy and global turmoil, we reduced
our 2001 EPS estimate
$0.18 to $2.87 and we reduced our 2002 EPS estimate $0.05 to $3.45.
q Our rating remains 1 - Strong Buy with a $70 price target. Citi trades at,
or just below, the median Large
Cap Bank p/e based on 2002 estimated EPS despite the strength and diversity
of its franchise.


Integrated Oil - European Recommendation Downgrades Jeremy Elden
Low risk, but low recovery potential
Following last week's tragic events, we are leaving most of our price
targets unchanged. The larger
companies now look cheap in absolute terms. However, we expect equity
markets to rally even
more strongly, leaving the oil sector behind and perhaps making the current
position a long-term
relative high point for the sector as seen in 1979/80 and 1990. For now, the
sector has the
advantage of being lower risk but, once investors feel more comfortable with
the economic and
political outlook, they may move elsewhere.
Oil supply currently unaffected
Demand expected to fall
Eni and TotalFinaElf have greater exposure to Mid. East/N.Africa
Repsol YPF price target cut to E17.5 from E18.4
ENI rating cut from Strong Buy to Buy
TotalFinaElf rating cut from Buy to Market Perform
Oil & Gas: Exploration & Production Thomas R. Driscoll
Outlook-Shares in Light of Development
Recent events do not substantially change our view of intermediate-term oil
and gas fundamentals.
We remain cautious on the E&P sector overall but we are looking for
selective purchase
opportunities.
Near-term prospects are that oil prices may be higher than we previously
thought.
Weakening economic activity may hurt natural gas demand and lead to a more
prolonged natural gas
oversupply situation - and weaker natural gas prices.
E&P shares fell 1-6% on Monday and we are looking for entry points.
Both EOG Resources and Noble Affiliates appear to be more than 10% below our
estimate of fair value.

COMPANY / INDUSTRY UPDATE
Beverages Michael Branca
Consistency & Predictability Uncertaiin
From an earnings stability perspective, the beverage industry will plainly
be hurt by recent events
and increasing recessionary pressure in the near-term. But, historically,
the industry has still
generated relatively consistent profit and cash flow growth -- even during
recession and slow-growth
economic environments.
Nearly all consumer products, including commercial beverages, are impacted
during such trying times.
However, the beverage industry tends to suffer less significant short-term
consumption disruptions and a
far more rapid return to normalcy. Moreover, the 3 big beverage companies
tend to suffer less as their
product portfolios are skewed to more affordable, traditional products which
could benefit from trade down
consumer behavior.
Fortunately, these companies are blessed with the virtue of consistently
generating tremendous amounts
of free cash flow -- such operating performance affords far greater
opportunities for share repurchase and
equity stock price support/resilience, especially in volatile markets.

Cosmetics; Household & Personal Care Ann Gillin Lefever
Seeking Earnings Stability
From an earnings stability perspective, the household and personal care
industry will plainly be
hurt by recent events and the increasing recessionary pressure in the near
term. However, the
industry is likely to outperform the market from an earnings growth
perspective, which has
historically led to multiple expansion above current levels.
q Among the large caps companies in our coverage, we currently prefer
Colgate for its earnings consistency,
driven by the strongest unit growth in the group. P&G is our next choice,
due both to its recent efforts to
reign in costs (and consequently improve its earnings consistency) and its
valuation relative to the other
large caps. Likewise, Clorox is currently in the cost-cutting mode. Gillette
is our least favorite as we
believe that it is most exposed to discretionary consumer spending and has
already fully priced in the
expected upside from its very focused management team.
q Notwithstanding that the large caps are most likely to benefit from an
investor flight to liquidity, we are not
inclined to chase the small caps. As we have noted in the last month, we
believe that Dial almost fully
discounts a takeout price, which we peg at roughly $16. Energizer and
Rayovac appear exposed to
consumer discretionary spending, particularly as we enter the all-important
CY Q4. Underlying
fundamentals at Playtex are still not strong enough to drive relative
earnings out performance, a key driver
of multiple expansion.

Food Andrew Lazar
Stocks Offer Earnings Stability
q From an earnings stability perspective, the packaged food industry will
plainly be hurt by recent
events and increasing recessionary pressure in the near term. But
historically, the industry has
generated relatively stable profit growth - even during recession.
q In short, the packaged food sector is generally less economically
sensitive than other sectors and, unlike
many other sectors, has not had pricing leverage for years.
q While food stocks are not inexpensive - trading at the upper end of their
historic trading range - the group
has traded at as much as a 35% relative premium during periods of slower
economic growth, suggesting
potential further relative outperformance.

NOTES FROM TODAY

Oil & Gas: Exploration & Production Thomas R. Driscoll
Storage Report - Wedn. at 2PM
Storage report -- to be announced this Wednesday at 2PM.
We estimate that this week's storage report - to be announced this Wednesday
at 2PM - will be an
injection of about 85 bcf (10 bcf lower than our previous estimate of 95
bcf) compared to an injection of 72
bcf a year ago.
Air Conditioning Customer weighted cooling degree days for last week were 42
(10 higher than our
previous estimate of 32) compared to 62 last year and 48 normally.
We estimate that next week's storage report will show an injection of about
85 bcf compared to an injection
of 67 bcf a year ago. NOAA estimates cooling degree days of 31 versus 40
last year and 39 normally and
heating degree days of 19 versus 27 last year and 27 normally.
We expect the year-over-year storage surplus to increase from 409 bcf as of
9/7/01 to 422 bcf (estimated
injection of 85 bcf versus 72 bcf a year ago) for the week ended 9/14/01.

Oil Services & Drilling - Rowan James Crandell
Reducing Third Quarter Estimate
Rowan Companies continues to experience weak Gulf of Mexico conditions,
specifically for its
premium Gorilla jackups. We believe that Rowan will experience weak activity
levels through 2001
with a gradual resumption of higher drilling levels in 2002. We rate the
shares a 1 Strong Buy.
We are reducing our third quarter estimate to $0.22 from $0.25 in reflection
of continued weakness within
the Gulf of Mexico jackup market. New company guidance is $0.20-0.25.
q For the first two months of the quarter seven to nine rigs have
experienced downtime. Utilization for the
company four Gorilla rigs has run at 31% for the first two months of the
quarter. Other remaining jackups
in the GOM have run at 82%, but we expect this will fall to 60-65% in
September.
q Dayrates continue to be weak, falling to an average of $57,000 from
$61,000 and we believe will fall
farther.

Oil Services & Drilling - ENSCO Angeline Sedita
GOM Weak - Reducing Third Qtr. Estimate
ENSCO is a leading offshore driller with a strong presence within the Gulf
of Mexico, as well as in
the international markets. Continued weakness within the GOM has resulted in
a further reduction
in our estimates, however international markets continue to be strong. As
the stock is trading at
the lowest multiple in the group and we view 2002 as a stronger year, we
rate the shares a 1 Strong
Buy.
We are reducing our third quarter estimate to $0.40 from $0.43 and reducing
our fourth quarter estimate to
$0.25 from $0.36 in reflection of falling day rates and utilization within
the Gulf of Mexico. We are also
reducing our 2002 estimate to $1.35 from $1.99.
New contract roll-overs for the 250ft IC and 300ft IC jackups have fallen to
the mid-to-upper $20,000's from
the low-to-mid $30,000's only a month ago. We expect rates to decline even
further.
ENSCO currently has six jackups idle, but expects one to two rigs to go back
on contract over the next
week or two.

Orion Daniel Ford
Focus on the Numbers 3 - Market Perform / (USD)
ORN is the biggest power producer in New York City and the stock has
declined 22% since trading
reopened this week. Below, we provide a factual summary of market pricing
and conditions.
ORN is the biggest producer in New York City with 2,160 MW. Press reports
set last week's events as
removing 100-200 MW of load from nearly a 9,000 MW market.
NYC economics for ORN are driven largely by capacity revenue (MW available)
and energy pricing margin.
The next bi-annual capacity auction is in October and is based on trailing
demand conditions
Our capacity assumption drops from $105/kw year in 2001 vs. $85 per kw year
in 2002 and has been
conservative though is volatile (every $10/kw year is $0.13/share).

Restaurants Mitchell Speiser
FY1Q Preview/Bias Toward Upside
Expect at least in-line FY1Q EPS & above-category Comps. While Sep sales
likely to be weak on
fragile consumer spending, mgn grth should continue on lower seafood costs &
advertising rates.
Maintain 1-Strong Buy.
Expect FY1Q EPS of $0.49-$0.50, +7-9%. Bias toward Upside on steady Comps &
mgn growth. Expect
update on Sep. sales; given fragile consumer spending, softness likely.
With June/July known, expect FY1Q Comps of 2.5-3% at Red Lobster & Olive
Garden led by Pricing.
1Q/Full year Comps target; low-end of 3-5% range.
With seafood & advertising costs down 20% & 10%+, resp., this is a source of
potential upside.
Expect solid FY1Q/DRI's value positioning & nat'l awareness should drive
above category grth. At <14x,
Maintain 1-rating.

Mortgage Finance Makiko Coakley
FNM & FRE: Strong Fundamentals
We believe FNM and FRE are very well positioned in this uncertain market
environment. When
there are market disruptions, the GSEs step up to provide liquidity in the
mortgage market. The
expected increase in the refinance mortgage volume (due to lower interest
rates) should result in
higher mortgage purchase volume. At the same time, the lower interest rates
should result in
higher net interest margins. Further, their credit statistics continue to
remain solid. FNM and FRE
are still trading at less than 14 times our '02 EPS estimates, which is
below their median P/E
multiples over the last 5 years. We reiterate our 1 Strong Buy ratings for
both stocks. Our price
targets are $100 for FNM and $80 for FRE.
FNM reported its August business volume on Tuesday. While its mortgage
purchase volume came in in-line,
its net interest margin was much higher than we expected (expanded by 5 bps,
while we were
expecting a decline). Despite the margin expansion, the company kept its
guidance for its EPS in 2001
unchanged due to the fact that it is repurchasing its own debt. Debt
repurchases should enhance its
earnings growth in 2002 and beyond.

Major Pharmaceuticals Charles Butler
Rx Monthly Trends: August 2001
IMS monthly script data for August 2001 is now available.
Comparing new prescription data to that of August 2000: ACE/A2 drugs were
down 0.4%, allergy drugs up
3.4%, alpha blockers were down 4.1%, antibiotics were up 1.0%, antifungals
were up 3.8%, arthritis drugs
were down 3.9%, asthma drugs were up 7.6%, calcium blockers were down 8.8%,
cholesterol lowering
drugs were up 29.5%, oral diabetes drugs were up 5.0%, migraine drugs were
up 1.5%, osteoporosis
drugs were up 1.5%, rheumatoid arthritis drugs were down 2.6%, schizophrenia
drugs were up 6.8%,
seizure drugs were up 5.6%, sexual dysfunction drugs were up 6.8%, and ulcer
drugs were up 3.2%.
Below we have presented a sample of script data trends on timely therapeutic
categories. Our detailed
monthly script report outlining all major therapeutic categories will soon
be available.
Medical Supplies & Devices - Eye David A. Gruber
Pre Announces Q3 Results
We maintain our 3-Market Perform rating on EYE given the limited visibility
on 2002 EPS and no
clear indication that the erosion in revenue has subsided.
Company pre-announces Q301 results.
Reducing 2001 and 2002 EPS estimates
Fair value for the stock is difficult to determine.

Food - General Mills Andrew Lazar
Strong Start To FY02. Maintain Buy
General Mills reported above-forecast fiscal 1Q02 operating EPS of $0.60
(excluding $0.02 of
goodwill addback) - in line with our estimate and a penny better than
Consensus.
We continue to forecast double-digit EPS growth in fiscal 2002 for GIS core
business, supported by peer
leading volume gains.
Fiscal 1Q volume improved 5%driven by yogurt and snacks. Cereal shipments
declined slightly resulting
from strong sell-in of new products in previous quarter, however, takeaway
rose a robust 5%.
q Given recent events, our contact phone number will be 917-689-2587. We
look very forward to
reconnecting with all of you.

Electronics Manufacturing Services - Solectron Louis Miscioscia
Meets Expectations, Challenging FY Ahead
Solectron reported in-line 4Q01 results and maintained forward guidance.
However, we are
reducing our estimates given the lack of visibility and in order to take a
more cautious approach.
For the 4Q revs came in at $3.6B, $200M above our est, and EPS hit concensus
at $0.06. For the full year
revenues were $18.7B and cash EPS of $0.78.
We are moving FY02 revs to $13.4B, down from $14.9B and well below guidance
of $16.5B-$18B. Our
new EPS est is $0.30 from our prior $0.57.
Our reason for being below the revenue and EPS guidance of $0.60-$0.65 is
due to the concern that the
end markets will take longer to bounce back, especially those in the comm
areas, and we want to remain
conservative on sequential growth.

Business & Professional Services Jeffrey Kessler
Cendant to Offset Airline Traffic Drop
The market's immediate response has hit Cendant's stock by xx%, due mainly
to its increasing
exposure to the travel sector. While we may have to lower our estimates a
few cents, there are
several factors which should offset any serious downward earnings estimate
changes.
Negatives: An expected drop in airline travel should hurt earnings at
pending acquisitions Galileo and
CheapTickets, at same-store revenues in Cendant's airport-related hotels,
and eventually at Avis, when
the current auto-rental surge ends.
Positives: Over the very short term, Avis is sold out, giving it more time
to continue de-fleeting. Over 5000
of Cendant's 6000 franchised lodging units are roadside based, and are also
getting a short-term pop from
non-airline travel. Longer term, the 20%-30% surge we are seeing in new
franchise sales in both lodging
and real estate, as well as NRT's aggressive acquisition activity should
offset the same-store declines.

Paychex Inc. Adam Waldo
Expect Another on Target Quarter. 2 - Buy / $31.69 (USD)
On September 20,we expect PAYX to report F1Q02 results (for the quarter
ended August 2001). We
look for revenue of $244.3 million (up 20% year over year) and EPS of $0.19
(up 24% year over
year). Management will host a conference call to discuss the results at 11AM
EST at (877) 668-3803,
no passcode. A replay will be available at (706) 645-9291, passcode is
1572439.
With a high return, low execution risk organic growth "rollout" strategy, a
64%(and rising)return on average
invested capital, historically low revenue and earnings volatility,a vast
addressable market opportunity
which grow 11-13% per annum and is about 15% penetrated,and a strong market
position,we believe
PAYX is one of the highest quality stocks in our Business & Professional
Services universe

Department Stores/Broadlines Jeffrey Feiner
Week 2 Retail Sales (Part 1)
q Below are the estimated sales for September, week 2 for major retailers.
q Sales for week 2 - which were obviously an anomaly given the events of
September 11 - were below to
significantly below plan for most of the retailers in our universe. The
exceptions were value-oriented
retailers. Wal-Mart, for example, experienced more-favorable results from
increased sales in food as
consumers stocked up on pantry items in reaction to the recent events.
Dollar General's comparable store
sales for the second week were slightly above plan while Costco reported
sales for the week just slightly
below plan.

Department Stores/Broadlines Jeffrey Feiner
Week 2 Retail Sales (Part 2)
q Below are the estimated sales for September, week 2 for major retailers.
q Sales for the second week of September were below to well below plan with
the exception of the discount
sector, which experienced strong sales of consumables and other items
associated with 'pantry loading.'
After falling as much as 20% at department stores, retailers in our universe
reported that sales began to
return to more normalized levels over the weekend, although sales at
mall-based retailers and those with a
large presence in the Northeast remained sluggish. Below we provide sales
commentary for several
companies in our universe.

Business & Professional Services - CTAS Adam Waldo
Quarter of Decelerating Top Line Growth
On September 19, we expect CTAS to report F1Q02 results (for the quarter
ended August 2001). We
look for revenue of $576.8 million (up 10.5% year over year) and EPS of
$0.34 (up 13% year over
year). Management will host a conference call to discuss the results at 11AM
EST at 800-946-0782,
passcode: 520860.
In F1Q02, we look for consolidated revenue growth of 10.5% (8% internally),
marking the third straight
quarter of decelerating top line gains in the slowing U.S. economy. CTAS'
two principal drivers of the
velocity of top line growth are the pace of GDP and employment growth.
Trading at 28 times our fiscal 2002 EPS of $1.49, 36 times our fiscal 2002
free cash flow forecast, and a
trailing EV/EBITDA ratio of 15 times (private market value range of 7-11),
we think CTAS is fully valued
despite a "defensive" 60% recurring revenue model.
With management following strategies for longer-term shareholder value
creation (nicely improving internal
unit growth, unit pricing, and capital efficiency), we would be buyers in
the low $30s.

Wireless Services John Bensche
DCEL to Sell 5 Properties to Verizon
The sale of 5 non-strategic to Verizon will de-lever the balance sheet,
putting DCEL on stronger
footing. We reiterate our 1 Strong Buy rating.
DCEL is in negotiations to sell 5 properties (AZ, CA, GA, OH, TN) to Verizon
for $550M or $480 per POP.
The proceeds will be used to pay down debt.
The company indicates that the properties under negotiation were a good fit
for VZ, and are not strategic to
AWE or Cingular. In addition, these markets are island markets that were
non-contiguous to other DCEL
properties.
The TN property is owned jointly with AWE through the American Cellular JV,
the purchase price for this
property is expected to be $202M or $697 per POP. Proceeds to DCEL will be
$101M.
We estimate that $337M will go to Dobson to pay down debt. The per POP price
for the 4 Dobson
properties (AZ, CA, GA, OH) is $406.

Wireless Services John Bensche
Postponing Management Lunch on 9/19
Postponing Management Lunch on 9/19/01.
Due to the unfortunate circumstances in New York City last week, we are
postponing the American Tower
management lunch that was previously scheduled for this Wednesday, 9/19. We
intend to reschedule this
event as soon as possible.

Wireless Services Timothy Luke
Conference Call: 9/20 - Investigating Global Wireless Outlook
We are pleased to announce our Wireless Services and Wireless & Internet
Infrastructure analysts,
John Bensche and Tim Luke, are hosting the Lehman Brothers Global Telecom
Conference Call on
Thursday, September 20, 2001, at 10:30 a.m. Following a series of checks, we
are reviewing the
outlook for global wireless capital expenditures, subscriber growth, and
handset volumes in 2002.
Upon extensive carrier by carrier checks, we believe infrastructure
investments by global wireless carriers
are likely to be flat to down in 2002, reflecting more modest spending
growth in Europe and lower capex
growth in Asia, the U.S., and Latin America.
As a result of this revised outlook, we recently trimmed our estimates for
leading wireless equipment
vendors ERICY ($3.50) & NOK ($15.22), following recent revisions to MOT
($15.45). We believe the
stocks already reflect much of the challenging outlook but with few near
term catalysts, we remain cautious
on the equipment group. The CDMA market continues to outpace growth of
industry. We are maintaining
our 3 Market Perform ratings on Motorola and Ericsson and our 2 Buy rating
on Nokia. Our preferred
defensive names remain CDMA innovator QCOM ($46.37) and applications play
Comverse ($22.67), both
rated 1 Strong Buy.

David C. Morris
Sr. VP Lehman Brothers
713-652-7112/800-227-4537
dcmorris@lehman.com

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