): Downgraded to 2 STARS (avoid) from 4 STARS (accumulate)Analyst: Craig Shere
The shares were solidly lower today as BellSouth cut its guidance on Latin American exposure and delayed long distance entry. S&P is lowering its 2002 EPS estimate to $2.42, from $2.58. This excludes $200-$230 million in first quarter charges relating to currency devaluations. With likely negative international revenue growth, and 40%-owned Cingular Wireless operations slowing, the drivers for an improving outlook are difficult to discern. With the stock's
beta -- a measure of its volatility -- under 0.5, continuing forex losses and anemic EPS growth, the company should underperform the S&P 500 during the economic recovery.
JC Penney (JCP
): Upwngraded to 4 STARS (accumulate) from 3 STARS (hold)Analyst: Karen Sack
The company's fourth quarter EPS was better than expected. Penney posted $0.39 EPS vs. a loss of $0.18, before one-time items. The results reflect solid sales gains and strong improvement in operating income at its department stores, catalog and drug stores. The company earned $0.39 for fiscal 2002 (Jan.) vs. a loss of $0.44, before items. Penney did a good job in managing inventory and cutting overhead by consolidating functions. It is boosting fiscal 2003 capital spending 30% to $850 million, improving distribution centers and reconfiguring stores. S&P still sees fiscal 2003 EPS of $0.85, and a continued turnaround in all businesses.
American International Group (AIG
): Reiterates 4 STARS (accumulate)Analyst: Catherine Seifert
The shares were lower as a nervous market reacted to reports AIG has been subpoenaed by the Securities and Exchange Commission regarding PNC Financial Services' structured-finance case. AIG entered into three structured finance deals with PNC, but has appropriately consolidated them on its balance sheet. S&P also ties the weakness to concerns over Chairman Greenberg's health, and succession issues. S&P does not share these concerns, but outlook for AIG is tempered by general market wariness about opaque accounting, which is an issue for all insurers.
Barnes & Noble (BKS
): Reiterates 5 STARS (buy)Analyst: William Donald
Helped by better-than-expected retail sales, Barnes & Noble expects to report $1.28 consolidated EPS for just-ended fiscal 2002 (Jan.), well ahead of the $1.18 Wall Street consensus estimate. The company expects first half fiscal 2002 same-store superstore comparisons to gain 2%-3%, an second half comps to rise 4%-5%. It anticipates a 46% surge in consolidated fiscal 2003 EPS to $1.87, reflecting a 24% jump in retail bookstore and gamestore profits to $2.11. The company also sees a 34% drop in its share of online losses to $0.23 from $0.35. S&P thinks the shares are undervalued, trading well below its $40 12-month price target.
): Still 3 STARS (hold)Analyst: Phillip Seligman
The company posted a fourth quarter loss of $0.59 vs. EPS of $0.20, before special items, $0.06 below S&P's estimate. Healthcare premiums were off 9.3% on 16.8% fewer risk members, offset by higher yield. Aetna posted a healthcare operating loss vs. a profit in the third quarter on seasonally higher costs. But its medical cost ratio was below the previous quarter's. S&P sees cost initiatives, rate hikes, new products, and the culling of unprofitable products and markets improving the chances for Aetna's hoped-for return to profit in 2002 (excluding gains from goodwill nonamortization). S&P sees the company in the black in the year's second half, but visibility remains low and 2002 trends too new for refined company guidance until its first quarter conference call.
): Keeping 2 STARS (avoid)Analyst: Richard Tortoriello
The electronic design automation software company reported January quarter EPS before goodwill of $0.27, vs. $0.19, in line with Wall Street expectations. Revenues were up 12%, but down 4% from the October quarter. Synopsys saw weaker than expected spending in North America. The company believes it is gaining share over its larger competitor Cadence. However, S&P still sees significant risk in Synopsys' acquisition of Avant!, with a large civil suit pending. Trading at 4.6 times sales and 6.3 times book value, Synopsys sells at a premium to its peers. With S&P's EPS estimates coming down, it sees Synopsys shares at risk.