Markets & Finance

S&P Says Sell UAL


ImClone Systems (IMCL): Reiterates 3 STARS (hold)

Analyst: Frank DiLorenzo

IMCL still receiving 39% of U.S. revenue from Erbitux. Instead of $300 million upon acceptance of an application for approval by FDA, ImClone will get upfront $140 million from the new deal and $60 million in one year, innstead of $500 million upon approval, ImClone will receive $250 million on initial approval and $250 million for approval in the second indication. This doesn't change the timeline for approval, which S&P sees as at least one year or more, and thinks the landscape continues to be increasingly competitive. At 37 times the 2004 EPS estimate of $0.76, S&P feels ImClone is fully valued.

Circuit City Stores (CC): Reiterates 3 STARS (hold)

Analyst: Theresa Graves

Fourth quarter sales were consistent with earlier company guidance. EPS outlook is modestly better, and including $0.31 from CarMax vehicle business, S&P is adjusting the EPS estimate for full fiscal 2002 (Feb.) to $0.92, from $0.90. This iincludes $0.03 in costs related to a lease termination. S&P anticipates Circuit City will move towards a spinoff of KMX ownership. Based on the current price of KMX tracking shares, S&P expects Circuit City shareholders to get KMX stock worth about $8.75 per Circuit City share held. For its consumer electronics business, S&P is keeping the fiscal 2003 EPS estimate at $0.60, including $0.18 in costs from store remodels.

UAL Corp. (UAL): Maintains 1 STAR (sell)

Analyst: James Corridore

UAL, the parent of United Airlines, said Wednessday that machinists would get 19%-37% raises, which allows UAL to avoid a crippling strike. The stock rose sharply on Monday, in advance of the news. Investors now are likely to focus on core problems at the company, which include an unsustainable cash burn rate, huge losses and the need to gain concessions from all of the company's unions. UAL has three other unions to settle with. S&P sees large losses in 2002 and 2003 and feels the company is likely to take on more debt to remain liquid. This will worsen sn already shaky balance sheet. S&P still sees a high risk of bankruptcy.

Kohl's (KSS): Upgrading to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Karen Sack

The department store retailer posted blowout Q4 EPS of $0.68 -- up almost 31%, on 6.8% gain in same store sales. Gross margin widened in spite of a high level of promotions and narrower expense ratios. Operating income rose 30%, and earned $1.45 in fiscal 2002 -- up 32%. As Kohl'stransitions from a regional to national chain with expansion plans of 70 stores in fiscal 2003, and 80 stores in fiscal 2004, S&P sees opportunities for continued strong growth. S&P is raising the fiscal 2003 estimate by $0.07 to $1.80. Kohl's premium price-to-earnings ratio is warranted as the company has a history of upside EPS surprises.

Hewlett-Packard (HWP) 20.6***) and Compaq Computer (CPQ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

In a largely anticipated move, proxy service Institutional Shareholder Services (ISS) issued its support of the merger. While ISS's support should give the deal a psychological boost, S&P still doesn't view the strategic positioning envisioned for the new company as compelling. Indeed, the integration of the companies will likely take a significant amount of time, with substantial risks to revenues in the interim period. Still, with the combined shares trading at a low price-to-sales ratio of 0.7, these companies are O.K. to hold.


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