Markets & Finance

Downgrading Comverse Technology to Hold


Comverse Technology (CMVT): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Ari Bensinger

Amid a deteriorating capital spending environment, the company sees July-quarter sales at $345 million and EPS of $0.28, below S&P's $365 million and $0.43 EPS estimates.

Lower sales will squeeze the gross margin to the mid-50s, under S&P's 62% estimate. The weaker euro also is hurting business. Customers are deferring purchases as they turn to

the just-in-time inventory system. S&P sees the delay in next-generation 2.5/3G wireless network postponing several revenue growth opportunities. The company guided fiscal 2001 (Jan.) revenue to $1.38 billion with $1.14 EPS, vs. S&P's estimate of $1.5 billion in revenues and $1.70 EPS.

DoubleClick (DCLK): Reiterates 5 STARS (buy)

Analyst: Scott Kessler

Shares are down Wednesday because Q2 results are not being construed favorably. S&P lowered the 2001 revenue estimate to $425 million, but the cut was only 3.4%. DoubleClick also affirmed a consensus second-half 2001 loss per share estimate of $0.09, which S&P expects the company will beat. Despite the tough online-advertising market reflected in its financials, S&P believes the company has major strength in its balance sheet. DoubleClick's $814 million in cash is a competitive advantage that will help the company to gain share and expand in new areas like e-mail marketing, which S&P expects will add $100 million in 2002 revenues.

Medtronic (MDT): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Robert Gold

An advisory committee recommended that the FDA approve Medtronic's InSynch device for congestive heart failure (CHF). Assuming full approval by the end of 2001, CHF sales can be expected in fiscal 2002 (April) Q4. Medtronic emerged as the CHF leader after the committee's decision against Guidant's Contak device. The company will update its fiscal 2002 Q2 results at 4:15 ET on Wednesday. For now, S&P is leaving the fiscal 2002 EPS estimate at $1.20 because of valuation concerns. Still, S&P is positive that CHF developments and expectations of renewed growth in calendar 2002 should attract capital to the industry leader.

Allstate Corp. (ALL): Maintains 5 STARS (buy)

Analyst: Catherine Seifert

S&P says the insurer is worth buying, but is cutting the 2001 estimated operating EPS by $0.50 to $2.50. The cut reflects higher-than-expected Q2 catastrophe losses of $536 million (versus $367 million a year ago), mainly from tropical storm Allison. S&P is maintaining the $3.45 2002 estimated operating EPS. S&P is disappointed by the magnitude of these claims, but Allstate's plan to shift its business mix to a multi-line model should mitigate the impact from catastrophe losses in the long term. The 6-12 month target price is $52.

Compaq Computer (CPQ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

The personal computer maker preannounced a Q2 revenue shortfall, but says it will meet the Street's mean of $0.04 EPS. Revenue is seen at $8.4 billion, down 9% from the previous quarter, and lower than S&P's $8.9 billion estimate.

As feared, Europe sales were weaker than originally expected. Compaq will take a restructuring charge amid 4,000 job cuts, bringing the total job cuts for the year to 8,500. This action will lead to annualized cost savings of $900 million. The positive news was the company's progress on cost cutting and its sharply reduced inventories. S&P is cutting the below-consensus 2001 estimate by $0.05 to $0.40. At 17 times S&P's $0.83 2002 estimate and with a price-to-sales ratio of 0.6, Compaq is worth holding.


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