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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | AUGUST 9, 2001  STOCK PICKS & PANS • From S&P Downgrading Edison International Also: analysts' opinions on Rainbow Media and Nortel. Plus others
Analyst: James McCann Given the recent rise in these speculative shares, S&P sees the upside potential reduced. While the Southern California Edison utility wants to avoid bankruptcy, a state senate bill approved on July 20 would leave it about $1 billion short of that needed to regain creditworthiness. S&P sees state assembly crafting a plan more closely resembling last April's agreement with the governor when it returns on August 20. Still, the outlook for a bill that can pass both branches remains uncertain. Rainbow Media (RMG ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate) Analyst: Thomas Graves S&P generally is pleased with the tracking stock's 20% pro-forma cash flow growth from core networks in Q2. As expected, overall results were hurt by losses elsewhere. S&P looks for a subscriber base of various Rainbow Media nets to grow in the next couple of years, helping sales of advertising or sponsorships. As digital cable rolls out, S&P expects new opportunities for Rainbow Media programming. But S&P's bullishness on the tracking stock is limited by the extent of the premium EBITDA multiple seen given to business, plus the prospective sale of AT&T holdings of Rainbow Media. Lamar Advertising (LAMR ): 4 STARS (accumulate) Analyst: Howard Choe Lamar posted a Q2 loss $0.21 vs. a $0.23 loss -- a penny better than S&P's guidance. Revenues and EBITDA were up 11% and 12%, respectively. Same store revenues and EBITDA both rose 1%. The company's guidance for Q3 was much lower than S&P expected with proforma revenues and EBITDA down 7% and 18%, respectively. Lamar attributed the results to a weak July and a difficult advertising market. S&P sees the downside risk as short term; as cheap outdoor advertising should be the first to benefit from an economic pickup. S&P is lowering the 2001 loss per share estimate to $1.05 from $0.86. Shares are at a 10% discount to peers. Nortel Networks (NT ): Maintains 3 STARS (hold) Analyst: Ari Bensinger On the heels of rival Lucent's hugely successful $1.75 billion convertible preferred share offering last week, Nortel announced the planned sale of $1 billion in convertible senior notes. The seven-year notes are expected to carry a 4.75%-5.25% coupon and be convertible at a 25%-30% premium from the current price. Convertibles offer investors a less risky way to bet on Nortel's turnaround. Operationally, Nortel is successfully reducing inventory and accounts receivable. With about $5 billion in untapped credit facilities, S&P believes Nortel has ample room to maneuver through the current telecom downturn. Solectron (SLR ) 3 STARS (hold) Analyst: James Corridore Solectron will acquire C-MAC, a mid-sized EMS company, for $2.7 billion in stock. Solectron also expects Q4 fiscal 2001 (Aug.) revenues of about $3.0-$3.5 billion with $0.05-$0.09 cash EPS, and fiscal 2002 revenues of $16-$18.5 billion with $0.62-$0.66 cash EPS. Solectron's guidance is not out of whack with current expectations, but it reaffirms weakness. The acquisition is important for Solectron to keep up with trends towards providing end-to-end solutions, and expands its abilities in optical and complex manufacturing. Long term, Solectron should outperform, but given the tough conditions, S&P says investors should wait to add to positions. Any advice, analysis, or recommendations contained in articles labeled "Advice from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of Business Week Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis or recommendations that are published by Standard & Poor's. Standard & Poor's and Business Week Online are each units of The McGraw-Hill Companies, Inc. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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