Markets & Finance

Downgrading CVS to Accumulate


CVS Corp. (CVS): Downgrades to 4 STARS (accumulate) from 5

STARS (buy)

Analyst: Philip Seligman

CVS posted Q1 EPS $0.54 vs. $0.47, in line with expectations. Sales were up 13.6%, aided by an 11.3% gain in same-store sales and 17.6% higher pharmacy comparisons. Operating margins were down only four basis points, as pressure from a greater proportion of pharmacy sales, along with a continued shift to third-party pharmacy sales was offset by same-store sales gains and lower selling, general and administrative costs as a percentage of sales. S&P is trimming its 2001 EPS estimate by $0.05 to $2.10, and sees 2002's estimate at $2.45. S&P still views CVS as attractive on good EPS momentum, favorable long-term demographics, and a defensive market position.

Quanta Services (PWR): Reiterates 5 STARS (buy)

Analyst: Mark Basham

Demand from electric and gas utility markets are strong on earlier construction in good weather. S&P still sees 35% revenue growth in the sector, moderating only slightly to 30% for the rest of the year. Telecoms and cable markets are up a bit, but the trend is flat for the rest of year. S&P believes Quanta gained market share in the quarter as customers sought to manage construction and maintenance costs by outsourcing. S&P is raising its 2001 estimate from $2.00 to $2.05, and raised the 2002 from $2.25 to $2.33. S&P also is upping its 6-12 month target from $33.75 to $35.00.

CNET Networks (CNET): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Before an amortization expense, the Q1 loss per share was $0.13 vs. EPS of $0.02, significantly worse than estimates. Pro forma revenues fell 19% from last year and 32% from Q4, hurt by the difficult online advertising environment and lower spending on technology. CNET reported its first EBITDA loss in several years. Although the company has been among the leading innovators in the online advertising area with appealing new formats, S&P sees the media side of operations unlikely to recover until late 2001. Despite 60 million monthly users and great brands, S&P sees an 2001 EBITDA loss and thinks much of the bad news already is in the stock.

Cigna (CI): Maintains 4 STARS (accumulate)

Analyst: John Massey

Cigna posted Q1 EPS of $1.76 vs. $1.57, $0.02 below S&P's estimate. Premiums were down 5%, due to a loss of some large HMO customers and higher than expected medical cost trends, which were partly offset by strong PPO growth. Health care profit rose 13%, on a 12% premium hike, 2% higher membership and 11% cost trends. Indemnity profit was up 29%. The company's medical loss ratio was 85.9% vs. 84.0%, while administrative ratio was flat. Cigna's retirement unit profit fell due to a declining asset base as the market stumbles. Despite a tough Q1, results should benefit as the stock market improves. With shares trading at 15 times S&P's 2001 EPS estimate of $7.40, S&P rates Cigna outperform.

Priceline.com (PCLN): Maintains 3 STARS (hold)

Analyst: Scott Kessler

The online travel agent posted a net loss-per-share (pro forma) of $0.03 vs. $0.04, $0.02 better than Street consensus. Revenues fell 14% from last year, but were up 18% from Q4, due to strong new and repeat travel customer business. Gross margin widened from Q4 to 16.1%, the best in Priceline's existence. Restructuring and cost-cutting plans also are taking shape as Priceline detailed about $65 million in 2001 expense reductions. The company also has greatly increased customer satisfaction by repairing its brand image with improvements in website and customer communications. But even with Q2 profits seen, S&P still is skeptical of the business model.

Univision (UVN): Maintains 3 STARS (hold)

Analyst: Howard Choe

The Spanish-language broadcaster posted Q1 2001 EPS of $0.03 vs. $0.09, $0.06 lower than S&P's estimate. Of the shortfall, $0.03 was due to a restructuring, while the rest was for a programming writedown. S&P thinks the sales gain of 7.4% is quite good considering the 32% rise in 2000 and the weak general market. EBITDA fell 24% due to Internet losses and a programming writedown. The 2001 outlook is modest due to a likely weak upfront ad market, as well as added expenses for a new music unit and a second TV network. 2001 will be a transition year for cutting expenses and integrating strategic investments. Shares are amply valued at 21 times S&P's $1.52 2001 EBITDA estimate. S&P is lowering its 2001 estimate to $0.43 from $0.59.

Fluor (FLR): Maintains 4 STARS (accumulate)

Analyst: Stewart Scharf

Q1 EPS is in line at $0.36, or $0.15 after stock price-driven compensation charges. There's no comparable quarter because of a shift from the fiscal year (Oct.). New project awards are strong at $2.5 billion. The company is well positioned following the late 2000 reverse spin-off of Massey Coal. Fluor is getting new project awards, and margins are improving. Engineering, procurement and construction are leading growth, but the time lag is long for earnings recognition. Though shares now are trading at 27 times S&P's $2.00 EPS estimate for 2001 and 23 times the $2.35 EPS estimate for 2002, S&P sees further upside potential based on positive trends for energy-related projects.


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