http://www.businessweek.com/stories/2003-05-08/s-and-p-lowers-realnetworks-to-avoid

Markets & Finance

S&P Lowers RealNetworks to Avoid


RealNetworks (RNWK): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Scott Kessler

Shares have risen of late. In S&P's view, one factor may be the increased attention that RealNetwork's online multimedia segment has drawn, due to positive reviews of Apple's new iTunes music service. Also, Yahoo in March introduced its Platinum online video and audio offering. Although new entrants could expand the market's size, S&P thinks they also might contribute to a reduction in RealOne service subscriber growth and a rise in content costs. Prospects for RealNetwork's software business are also uncertain, in S&P's view. RealNetwork trades above peers on p-e and p-e-growth ratios.

Furniture Brands (FBN): Maintains 4 STARS (accumulate)

Analyst: Efraim Levy

S&P is lowering its 2003 earnings per share estimate on the residential furniture maker from $2.30, to $1.98, to reflect S&P's lower sales and operating margin forecasts and higher tax rate estimate. S&P thinks furniture demand in the second half of the year may not recover as strongly as S&P had earlier forecast. Quarterly pension costs also should be higher than 2002 levels. S&P thinks the company will continue to generate free cash flow, which could be used to deleverage its balance sheet. With a lower p-e than peers on 2003 estimates, and despite S&P's estimate cut, S&P says accumulate Furniture Brands now, to benefit when demand eventually strengthens.

Univision (UVN): Maintains 4 STARS (accumulate)

Analyst: Tuna Amobi

Spanish-language media company Univision posted 5 cents first-quarter earnings per share, vs. a year-ago's 3 cents, a penny above the Street's mean. Ratings and advertising gains at broadcast and cable networks, and local stations, continue to far outpace the industry. While gaining ad dollars from English language peers, Univision remains an undisputed leader across key Spanish demographics. But absent the 2002 World Cup, the second quarter is up for tough comparisons. Also, Univision's pending merger with Spanish radio leader Hispanic Broadcasting could be delayed until the Federal Communication Commission's June 2 media vote. The stock's p-e and enterprise value-to-EBITDA -- much higher than peers -- seems warranted by the 25% expected long-term earnings per share growth.

Genzyme General (GENZ): Maintains 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Genzyme announced plans to eliminate its tracking stock structure on June 30. Genzyme Biosurgery (GZBX) and Genzyme Molecular Oncology (GZMO) would be consolidated into Genzyme. Genzyme is reiterating the proforma earnings per share guidance of $1.25 to $1.35 for 2003 (excluding amortization). However, S&P thinks earnings would be lower if GZBX and GZMO were included on a full-year basis. S&P thinks the move is good from a long-term perspective and regarding financial transparency. S&P is keeping its proforma 2003 earnings per share estimate at $1.34. On a net present value analysis, S&P sees the shares as attractive.

Nvidia (NVDA): Maintains 3 STARS (hold)

Analyst: Thomas Smith

Graphics chipmaker Nvidia posted first-quarter fiscal 2004 (Jan.) earnings per share of 12 cents, vs. 47 cents, which was a penny above consensus. Revenues fell 31% year-over-year and 14% quarter-over-quarter, partly reflecting slower shipments into Xbox video games in a seasonally weak period, lost competitive skirmishes, and production bottlenecks. S&P expects better results this summer on seasonality and new products, but thinks earnings visibility is low. S&P is raising the fiscal 2004 earnings per share estimate to 63 cents from 60 cents, and is cutting the fiscal 2005 estimate to 90 cents from $1.00. At 25 times the fiscal 2004 estimate, the shares are at premium to the broad market but in line with peers.

Gateway (GTW): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

Gateway held an analyst meeting on May 8 and said it was comfortable with analysts' estimates for the year. Gateway reiterated its plans to achieve positive cash flow in the fourth quarter, boosted by a cost savings target of $400 million for the year. While S&P thinks the cost savings plans are achievable, S&P view the computer maker's confidence in its success in capturing growth in new digital solutions, such as digital TVs, as optimistic at this stage. S&P is keeping the 2003 loss estimate at $1.06. Still, with shares below the book value, and with its cash and investments, Gateway worth holding.


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