Recommendation update (page 1 of 2)

Stock price declined sharply since the beginning of this month due to profit taking, which is the general trend for the sector. Since beginning of July, S&P 500 Aerospace & Defence index declined 7.55%.

Since September 11th, the index increased 20.58% vs. -15.67% for the S&P 500 index. We believe current stock price reached its fair level although Boeing's P/E ratio (12x) remains lower than sector's P/E ratio (27x). Defence business should remain one of the best performers for the second half of the year. The macro environment remains solid for defence stock given the positive multi-year outlook for U.S. defence budgets. Commercial aerospace business also outperformed the market. Nevertheless, we are less positive for commercial satellite for 2H02 than defence sector due to a slower-than-expected economic recovery. This should affect new satellite orders as the investors rectify their expectations, reducing or cancelling new satellite orders. Besides, recent merger announcement between Boeing's space and communications and military aircraft divisions should not have a significant impact on costs.

It is seen as an internal political move. The reorganisation was driven by internal timing and it is not due to near-term financial issues. The company believes it would be able to put the right resources in the most efficient areas through this change. This merger was made to serve customers better, but this should not affect stock price. Boeing's commercial aircraft unit should remain weaker than its other businesses. The company just announced 2Q commercial aircraft deliveries of 112, just above the 110 delivered in 1Q02. 2H02 could be lower due to the current downturn in commercial aircraft. Furthermore, earnings in this business could also be reduced due to lower profit margin. Finally, the company is not protected against a strike. Recently Boeing's largest union, the International Association of Machinists, agreed to give leaders the authority to call a strike if contract talks fail with the company. For short-term investors we recommend to reduce, taking partial profit. Stock price could decline further if new aircraft orders drop for the 2H02 or if a strike is called.

Whirlpool Corp. (WHR, $63.09, CSFB recommendation: Hold): Helped by superior retailer alignment, Whirlpool's North American sales growth has surpassed core major appliance industry unit shipments over the past five quarters by a range of 240 basis points to over 900 basis points. It now appears that 2Q industry shipments through May approximated 10%, with June results to date at similar levels. These data points imply that WHR's domestic sales growth should exceed 10% for the quarter, which is slightly higher than market expectations. A $1.462 2Q EPS is expected. The company should announce its second quarter results on July 16th. Nevertheless, we remain cautious on the company due to its exposure in Latin America, given the economic and political unrest in the region. Hold


Finally, several financial companies among our recommendation list are expected to make public their quarterly results on July 17th:

JP Morgan Chase & Co. (JPM, $30.21, CSFB recommendation: Buy):
$0.652 estimated EPS vs. $0.180 y-o-y,

Citigroup Inc. (C, $36.35, CSFB recommendation: Strong buy):
$0.771 estimated EPS vs. $0.710 y-o-y,

Bank of New York Inc. (BK, $32.04, CSFB recommendation: Buy):
$0.508 estimated EPS vs. $0.520 y-o-y.


US Technology Stocks

• High volatility likely, as the earnings season approaches.


On a week-on-week basis, the NASDAQ Composite Index lost 5.17% to 1373.50.

We have seen a lot of mixed information over the past weeks, as some analysts revised their growth forecasts for the semiconductor capital equipment sector.