Markets & Finance

S&P Says Hold Priceline


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

Analyst: Scott Kessler

The online travel agency posted (pro forma) fourth quarter EPS of $0.01 vs. a per-share loss of $0.15, better than S&P and Street forecasts. Revenues rose 3%, but down 22% from the seasonally stronger third quarter, as the online travel area

slowly recovers from the economic downturn and September 11 attacks. Gross margin widened nicely from last year, but was flat versus the third quarter. Operating margin declined in great part due to the travel industry's lower capacity and prices. The stock is selling off on Priceline's comfort with 2002 EPS $0.12, and seen as conservative. But S&P is upping the 2002 estimated revenues by 9% to $1.2 billion and raising the EPS by $0.05 to $0.15. With price-to-earnings ratio of 33, S&P says still hold.

Enterasys (ETS): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

The networking equipment company will review accounting practices in its Asia region to ensure they comply with the company's revenue recognition policy. Earlier today, Enterasys said its fourth quarter EPS report will be delayed due to its review of terms of a $4 million sales contract recorded by its operations in Asia, and that it is reviewing sales practices by the region and has contacted its auditor KMPG. Asia has historically accounted for 13% of sales.

Enterasys believes this review, along with the transition in Asia management, will take one to two quarters. The company says the SEC letter indicating a probe didn't specify the scope of the investigation. While S&P believes these issues will overhang on the stock in the next six months, the 50% correction Monday has brought the price in line with S&P's conservatively calculated target of $5.33, based on the worst-case price-to-sales valuation, and S&P thus remains neutral at current levels.

Walgreen (WAG): Reiterates 3 STARS (hold)

Analyst: Joseph Agnese

The company reported January sales increased 17.2% and comparable store sales rose 10.7%. The pharmacy business is resisting an economic downturn with comparable sales rising 16%. However, comparable store front-end sales increased only 3.6%. S&P expects gross margins to continue to be pressured by increased third party business, front-end price cuts and a change in the sales mix to lower margin pharmacy items. The company is trading at 36 times the fiscal 2002 EPS estimate of $0.99, and S&P would not add to positions.

Hewlett-Packard (HWP): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

The copier and printer giant preannounced January quarter estimates and sees revenues and EPS above current consensus expectations. However, the news is not surprising. The company had set conservative guidance, and amid strong consumer sales posted by peers, S&P had anticipated an upside surprise. The key is that the January quarter was driven by strong consumer sales, and this is not likely to be sustained in the March quarter, which typically witnesses a fall-off in consumer demand. S&P now sees January quarter EPS of $0.24, vs. the prior $0.16 estimate, and sees full fiscal 2002

(Oct.) EPS of $0.95 vs. the prior $0.86 EPS estimate. With shares trading at 24 times the fiscal 2002 estimate and with the Compaq merger still mired uncertainty, S&P would remain neutral on H-P.


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