Markets & Finance

Hold Yahoo! Pending Announcement


Yahoo! (YHOO): Maintains 3 STARS (hold)

Analyst: Scott Kessler

Shares were down some 7%, before being halted shortly after the market opened. Indications are that Yahoo will put out a press release at 5 p.m. EST and conduct a conference call at 5:15 pm EST. On Tuesday, Yahoo's CFO cancelled her appearance at an Internet investment conference, less than one day before it was due to begin. Speculation as to the subject of this news has been rampant. Based on the dearth of information available, S&P expects Yahoo will provide reduced guidance and perhaps disclose details of management changes. S&P's Q1 estimates for Yahoo: $228 million in revenues and EPS of $0.05.

Royal Dutch Petroleum (RD) and Shell Transport (SC): Maintains 3 STARS (hold)

Analyst: Tina Vital

Both firms see share prices up slightly on Shell's $2.2 billion cash bid for Barrett Resources (BRR). Barrett shares also are higher. S&P sees the offer as fair a valuation at a 24% premium over Barrett's Feb. 28 close. Although the offer is pricey based on Barrett's proven reserves (about $9/BOE), this may be misleading because of coal bed methane play, enhanced recovery and hedging. If the transaction is consummated, it should be EPS neutral to Shell.

Worldcom (WCOM): Maintains 4 STARS (accumulate)

Analyst: Craig Shere

Worldcom shares are up on a report that management is open to the possible sale of the company. Its estimated $100 billion price ($140 billion with assumption of liabilities) is large by any standards. Potential suitors are likely limited to larger-cap regional bells SBC and Verizon. With Worldcom trading well below acceptable deal levels and bells in process of getting long-distance approvals, a deal is unlikely in the near term. But the attention highlights Worldcom's cheap valuation, at only 11 times S&P's $1.60 cash EPS estimate for 2001. S&P sees a planned Q2 issuance of tracking stocks as impetus for value recognition.

Intel (INTC): Maintains 4

STARS (accumulate)

Analyst: Megan Graham-Hackett

Chairman Andy Grove, speaking in a conference call with a brokerage firm, reportedly stated that he didn't anticipate end-user demand for chips to "snap back," according to several news reports. S&P believes this statement is in sync with the current consensus view that demand is unlikely to improve significantly in the near term. Intel is not changing its guidance, and we do not believe the story reflects any new news. Grove also stated that the company under-invested in past cycles, further supporting its announced capital expenditures spending for 2001 of $7.5 billion.

JDS Uniphase (JDSU): Downgraded to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Ari Bensinger

JDS sees Q3 fiscal 2001 (June) sales at $925 million, and EPS of $0.14, below our already reduced estimates of $950 million and $0.16 EPS. JDS also sees Q4 sales and EPS at same levels of Q3. S&P is reducing its fiscal 2001 01 EPS to $0.65 from $0.70. The lowered forecast reflects uncertain carrier spending prospects and customer inventory adjustments, primarily at Nortel (over 10% revenues). While S&P strongly believes in the long-term outlook (increasing demand for bandwidth will spur data driven network investments), it remains cautious until visibility improves.

Palm (PALM): Maintains 4 STARS (accumulate)

Analyst: Megan Graham-Hackett

Palm confirmed an earlier story that it plans to acquire Extended Systems (XTND) for $264 million in stock. It is currently estimated that Extended shareholders will receive Palm shares valued at $22 each, although is deal subject to collar. Palm says the acquisition will enable it to support other operating systems beyond Palm OS, including Pocket PC, Windows CE, EPOC and RIM. S&P views this as key for Palm to better penetrate the mobile-enterprise market. S&P views Palm's estimated price at 4.7 times Extended's $56.5 million in fiscal 2000 (June) revenues as reasonable.


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