Markets & Finance

Downgrading Hughes Electronics to Hold


Hughes Electronics (GMH): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Howard Choe

Hughes revised its guidance for Q2 and 2001 downward, citing the slower economy. However, S&P believes slower subscriber growth can be attributed mainly to merger distractions and believe the company's results modestly reduce its position in current merger talks and reveal its weakened operating condition. Hughes has been attracting subscribers at a slower rate than rival Echostar for some time. The company's plan to implement leasing programs should reduce subscriber acquisition costs and subscriber churn and should also help EBITDA.

Philip Morris (MO): Maintains 4 STARS (accumulate)

The tobacco and food manufacturer reportedly tightened its price range for tomorrow's Kraft Foods initial public offering (IPO) to $30-$31. With 1.74 billion shares to be outstanding, the initial market value for the world's second largest food company would be more than $52 billion. Philip Morris is retaining 74% of the food business, with IPO proceeds to be used for debt reduction. Kraft's dominant market position and

enhanced growth profile suggest an upside from the IPO price, but is likely to carry a discount for Philip Morris' tobacco litigation exposure. Shares are attractive at only 12 times S&P's 2001 EPS estimate of $4.10.

AmeriCredit Corp. (ACF ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Michael Schneider

S&P thinks business fundamentals still are positive, but a more conservative stance warranted, given the recent strong performance of the company's share price. Healthy growth

in loan purchases were driven by geographic expansion and market

share gains. The favorable interest-rate environment and

strong competitive position also aid growth prospects. S&P think net charge-offs will remain stable despite the ing

economy. Nevertheless, at 18 times S&P's fiscal 2001 (June) EPS

estimate of $2.55 and 13 times the fiscal 2002 estimate of $3.50, shares no longer warrant a buy rating.

Nokia (NOK): Maintains 4 STARS (accumulate)

Analyst: Ari Bensinger

Nokia sees Q2 sales growth somewhat below 10%, with EUR 0.15-0.17 EPS vs. the earlier guidance of 20% sales and EUR 0.20 EPS amid a U.S. slowdown that is extending to other geographic regions. Nokia forecasts the 2001 mobile market to be modestly higher than the 405 million units sold in 2000, in line with S&P's already reduced estimate. S&P believes the slowdown was expected, and is largely factored into the stock price. Nokia is aggressively increasing its leading mobile phone market share, and S&P sees ramping of GPRS (2.5G) phones boosting sales in Q4. S&P also believes Nokia will emerge from these difficult times much stronger.

Biogen (BGEN ): Maintains 3 STARS (hold)

Analyst: Frank DiLorenzo

Biogen announced the successful completion of Phase III trials of Amevive to treat moderate-to-severe psoriasis. The company also plans to file for approval in the U.S. and Europe in the second half of 2001. Biogen will directly market the drug, if approved. S&P would be more bullish, but expects strong competition to Biogen's popular Avonex drug from Serono's Rebif drug, which will be coming online in the U.S. by 2003. S&P expects Rebif to continue its current strong showing in Europe at the expense of competitors. For Biogen, S&P estimates EPS of $1.89 in 2001 and $2.27 in 2002. S&P considers Biogen reasonably priced at current levels.

Amgen (AMGN ): Maintains 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Amgen and partner Praecis Pharmaceuticals announced the FDA

rejected their application for the approval of Plenaxis to treat

prostate cancer due to inadequate information. Speculatively, the drug may be salvageable if more data is eventually submitted to the FDA, which may entail new trials. For Amgen, this negative news is overshadowed by Monday's approval of Aranesp in the European Union and expected approval in the U.S. by the FDA, possibly by next month. S&P still sees 2001 EPS of $1.16, and sees 2002 at $1.49. Valuation analysis suggests Amgen is attractive below $70.


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