Markets & Finance

Upgrading F.Y.I. to Accumulate


US Airways (U): Reiterates 3 STARS (hold)

Analyst: Richard Stice

The nation's sixth largest airline expects to post a Q3 loss in excess of $160 million, due to weak business travel demand. The company also will take a pre-tax charge of about $405 million for asset writedowns. US Air will focus on its core business following the Dept. of Justice's decision to block its merger with UAL Corp., the parent of United Airlines. US Air plans to reduce capacity growth to better balance capacity with demand. S&P is lowering the 2001 loss per share estimate to $6.50 from $4.20, leaving 2002 results at a $1.00 loss per share. While travel demand remains weak, with expected pickup in 2002 and realignment efforts underway, S&P thinks US Air is O.K. to hold.

F.Y.I. Inc. (FYII ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Mark Basham

The information outsourcing firm posted Q2 EPS of $0.55 vs. $0.46, a penny below S&P's $0.56 estimate. This excludes about $0.02 from four non-strategic units being divested, and also excludes $72 million in one-time charges related to the divested units, of which $62 million was non-cash. The company will record a $9 million pretax gain in Q3 on divestitures, so the net pretax cash expense associated with the divestitures is likely to be only $1-$2 million. S&P is trimming its 2001 EPS estimate from $2.28 to $2.20. S&P is also adjusting its prior $2.60 estimate for 2002 to reflect a new accounting rule for goodwill, S&P now sees $2.95, and is initiating a $46-$48 12-month target.

WebMD (HLTH): Maintains 3 STARS (hold)

Analyst: James Massey

The medical information provider posted a Q2 EPS loss per share of $2.30 vs. a $2.64 loss, both before one-time items. Cash EPS losses were $0.07 vs. $0.28, in line with S&P's estimate. Revenue fell 3.1% from Q1, mainly on the weaker Internet advertising market and the deferral of advertising sponsorships until Q4. Transaction and physician service revenue was flat vs. Q1, and portal services revenue fell 20%. Transactions fell 2% to 536 million from Q1. Gross margin was 33.2% vs. Q1's 32.1%, below S&P's 35% estimate. WebMD is on a plan to exit 2001 cash-EPS positive through cost cutting, but the company still faces significant challenges.

King Pharmaceuticals (KG): Maintains 4 STARS (accumulate)

Analyst: Herman Saftlas

The drug maker will pay $285 million for the U.S. rights to four products from Bristol-Myers: Corzide beta blocker/thiazide diuretic, Corgard beta blocker, Delestrogen injectable estrogen, and Florinef corticosteriod. These drugs had sales of $69 million last year, with gross margins of more than 90%. Corzide and Corgard complement King's Altace ACE inhibitor heart drug; others also fit in existing King niches. The sales force will be expanded by 44%. Also, King raised its 2002 EPS guidance to $1.24-$1.32, up from $1.14-$1.20.


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