Markets & Finance

Biogen Cut to Hold


Biogen (BGEN): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Biogen announced 2001 royalties in a range of $85 million to $95 million, sharply lower than our prior view of $158 million, largely due to the Schering-Plough dispute. S&P is raising its 2001 Avonex sales estimate to $877 million from $866 million, but thinks Avonex sales would have to be considerably higher than S&P's estimates to meet Biogen's 2001 EPS guidance in the low $1.90s range. S&P is lowering its 2001 EPS estimate to $1.89 from $1.97, and cutting the 2001 estimate to $2.32 from $2.35. S&P thinks recent pullbacks in other biotechs such as Amgen, Genentech, Immunex and Medimmune makes the group more attractive.

Lucent Technologies (LU): Maintains 3

STARS (hold)

Analyst: Ari Bensinger

The IPO of Agere Systems (AGR.A), formerly Lucent optoelectronic components and integrated circuits divisions, hit the market Wednesday. Agere will start out as a $4 billion business with 16,000 employees. In a difficult market, the IPO price was sliced three times from its original range of $15-$20 per share, finally settling at $6. Lucent raised $3.6 billion in this 600-million-share offering, and transferred $2.5 billion worth of debt to Agere. Lucent plans to spin off the remaining shares by the end of fiscal 2001 (Sept.). With this IPO completed, S&P expects Lucent to focus on the sale of its optical fiber unit.

Winstar Communications (WCII): Downgrades to 2 STARS (avoid) from 4 STARS (accumulate)

Analyst: Craig Shere

The company's Q4 EBITDA, minus the interest expense, was negative almost $130 million. Cash and cash equivalents at yearend were almost $316 million, leading to a cash-burn life of less than three more quarters. This analysis ignores capital expenditure needs and working capital needs (accounts payable stand at two times accounts receivable). With the capital market spigot effectively shut off, S&P is concerned about WinStar's viability for equity shareholders. Despite business growth, cash flows leave the any's current structure in doubt.

Palm Inc. (PALM): Downgraded to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Megan Graham-Hackett

Palm posted Q3 operating EPS of $0.02 vs. $0.03, above the Wall Street mean estimate of $0.01. Revenue was up 73% to $470M, in line with our estimate as shipments were up 112% to 2.1 million units. But the ecompany saw March slowdown in orders, leading to an unexpected inventory overhang. Palm now sees Q4 revenues of $300-$315M, below S&P's reduced estimate of $480M. The company sees a loss of $0.08 per share, and will cut its workforce 10% to lower costs. S&P is cutting its fiscal 2001 (May) estimate to $0.03 from $0.16, and sees a fiscal 2002 loss of $0.03. While S&P views the comapny's strong brand franchise and position as attractive, with severe pricing pressures likely, the stock warrants a hold ranking.

Cisco Systems (CSCO): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

Reducing S&P estimates for Cisco based on Nortel Networks' comments, on lowered guidance on 3/27 and on signs of heightened

pricing pressures in the networking equipment/telecom equipment industry. S&P is also cutting its fiscal 2001 (July) EPS estimate to $0.51 from $0.61 and its fiscal 2002 forecast to $0.46 from $0.71. S&P's estimate revisions extend its assumption of the severity of the downturn and further price pressures through the end of fiscal 2002. These could prove too pessimistic, but given the severity of the downturn, S&P believes a cautious stance is warranted.

Nortel Networks (NT): Maintains 3 STARS (hold)

Analyst: Ari Bensinger

Nortel guided Q1 sales forecasts to $6.1-$6.3 billion, with a loss per share of $0.10-$0.12. This is below already-reduced guidance of $6.3 billion and a $0.04 loss, respectively, and reflects the environment of lower capital spending and pricing pressure. Results were hurt by the economic downturn in the U.S (which accounts for 65% of sales). With visibility poor, Nortel is not giving full 2001 guidance. S&P had questioned prior guidance of 15% revenue and 10% EPS growth. The company will cut 5,000 more employees, bringing the net total to 15,000 (16% of workforce) since February. Despite its difficulties, this market leader remains well positioned for the long term.


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