): Maintains 5 STARS (buy)Analyst: Stephen Biggar
The company posted Q2 EPS of $0.74 vs. $0.65 one year earlier, $0.01 above expectations. The global consumer segment was the real growth driver on a healthy increase in receivables, aided by some leverage of newly acquired Associates franchise. The investment management segment had good performance, with revenues up 6% despite a difficult market environment. S&P sees basic trends intact, with EPS momentum being maintained by unparalleled geographic and product diversification. S&P is keeping its EPS estimates at $3.10 for 2001 and $3.50 for 2002. S&P thinks the share price is compelling at 16 times the 2001 estimate.
) and SCI Systems (SCI
): Each upgraded to 4 STARS (accumulate) from 3 STARS (hold)Analyst: Jim Corridore
The upgrades are based on news of a merger pact wherein each SCI share will be swapped for 1.36 Sanmina shares. The deal values SCI at $30.11 per share, or about $6.0 billion, including debt. S&P feels the deal solves each company's revenue mix problems. SCI gets into the higher-profit telecom space, while Sanmina diversifies away from telecom reliance. With SCI's large geographic presence and Sanmina's management expertise and higher margins, S&P sees the combined company achieving significant market, revenue and EPS growth. In this case, S&P feels the combination exceeds the sum of its parts.
USA Networks (USAI
): Reiterates 5 STARS (buy)Analyst: Mark Basham
S&P has placed its estimates under review following news that the company will acquire 67% to 75% of Expedia, including Microsoft's stake, for common, warrants, and preferred. USA Networks will also buy closely-held National Leisure; terms of that deal were not disclosed. The acquisitions, along with the company's majority-owned Hotel Reservations Network, form the basis of the new USA Travel Group. Gross bookings for the group are expected to grow 150% from 2000 to 2002. The new group has positive cash flow and no debt, and will launch the USA Travel Channel. S&P will have additional information after the conference call at 12:00 p.m. ET.