Markets & Finance

Amazon Shows Stronger Outlook


Salton (SFP): Reiterates 4

STARS (accumulate)

Analyst: Michael Kaminis

Salton expects revenues of $152-$156 million for the March quarter, 5% below S&P's forecast. Salton sees EBITDA margin at 19%-21%, reflecting a retail slowdown. The company is pursuing acquisition of a manufacturer and distributor of complementary products in Europe for $44-$90 million. S&P views the move as wise for dispersion of geographic risk, and thinks the issuance of $150 million in new debt is digestible. S&P expects introduction of new products this spring, including George Forman Outdoor Grills, to help offset a generally weak environment. Given the Fed action and likely industry consolidation, Salton shares are attractive.

Bank One (ONE): Upgrades to 3 STARS (hold) from 1 STARS (sell)

Wachovia (WB): Maintains 3 STARS (hold)

Analyst: Stephan Biggar

Bank One agreed to acquire Wachovia's $8 billion consumer credit-card portfolio for an undisclosed amount. Bank One, which has required a scale to compete effectively in the card business, sees a $100 million net contribution to earnings when integrated. Bank One still is lacking EPS momentum with difficult market conditions not helping, but recent decline in shares corrects its over-valuation compared to peers. S&P believes the downside now is limited at times its 2001 EPS estimate of $2.65.

Amazon.com (AMZN): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Amazon now sees net sales of $695 million, above S&P's estimate of $665 million. The online bookseller's gross profit and operating loss (pro forma) also will be better than prior forecasts. S&P attributes the favorable news to Amazon's strength in the electronics area, improved efficiencies and a reduced expense structure. S&P also believes Amazon benefited from lower start-up costs, since the company has been less aggressive in opening new merchandise categories amid the tough dot-com and economic climates. Despite reiterated 2001 guidance, Amazon's challenges over the next few quarters warrant prudence.

Edison International (EIX): Maintains 2 STARS (avoid)

Analyst: Justin McCann

While shares could rebound after sharp drop on Friday, the stock remains a highly speculative investment.. Shares are badly hurt by Friday's bankruptcy filing by PG&E Corp.'s Pacific Gas & Electric unit, but Edison's Southern California Edison utility is not planning to follow suit, preferring to work out a solution with the state that may or may not include the sale of its transmission grid. Edison could take a Q4 charge of about $2.7 billion when it files its delayed 2000 earnings report. S&P would avoid shares until the outcome of negotiations with the state become clear.

PG&E Corp. (PCG): Maintains 2 STARS (avoid)

Analyst: Justin McCann

Following the Chapter 11 bankruptcy filing by Pacific Gas & Electric unit, S&P expects continuing volatility in PG&E shares. The company hopes the courts will enable them to recover the bulk of their $9 billion in debt, which neither the Governor or California utility commission were willing to do. Pacific Gas may have to take a Q4 charge of up to $4.1 billion when it files its delayed 2000 earnings report. While generation assets and earnings of non-regulated National Energy Group unit arent' affected by the bankruptcy filing, PG&E's stock will remain speculative until a reorganization plan is worked out.


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