Markets & Finance

Downgrading WorldCom


Whirlpool (WHR): Maintains 5 STARS (buy) and Maytag (MYG): Maintains 4 STARS (accumulate)

Analyst: Efraim Levy

The Association of Home Appliance Manufacturers (AHAM), a trade organization, estimated that shipment volume of six key major home appliances (washers, dryers, dishwashers, refrigerators, freezers, and ranges) were up a strong 11.5% year-to-year. All major appliances rose 2.6%. The industry strength is reflected in Maytag's earnings per share (EPS) forecast of $2.52, and Whirlpool's EPS estimate of $6.26. Appliance manufacturers will also benefit from the strengthening economy, but S&P is wary about the impact on housing activity should the Federal Reserve Bank begin to raise interest rates.

WorldCom (WCOM): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Thomas Rosenbluth

Since the March 12 SEC Enforcement division probe was launched, WorldCom and other telecom providers have been called to testify before Congressional accounting hearings on Thursday. The company's auditor Arthur Andersen was indicted last week. S&P speculates that additional investigations will pressure a $15-$20 billion goodwill impairment charge from the fourth quarter even higher, which could weigh on earnings per share. Despite the expected longer-term benefit from an economic recovery and a relatively low price-earnings multiple, and unlikely to outperform the broader market with an overhanging cloud from an accounting probe.

Travelocity.com (TVLY): Downgrades to 2 STARS (avoid)

Analyst: Scott Kessler

On Monday morning Sabre said it upped its offer for 30% of Travelocity stock that Sabre doesn't own to $28 per share (from $23). Travelocity's special committee of outside and independent directors determined that the price is "adequate." Based on the committee's opinion, Travelocity's board of directors has recommended stockholders accept Sabre's new offer. S&P believes Sabre will prevail in the acquisition of Travelocity, and does not expect any other suitor to materialize. With Travelocity trading at basically Sabre's offer price, S&P suggests investing elsewhere.

Network Associates (NET)

Analyst: Jonathan Rudy

Network Associates will acquire the remaining 25% of McAfee.com that it does not currently own for about $205 million in stock. The purchase will result in a slight dilution in 2002. S&P believes the move is a positive step toward improving the transparency of Network Associates, and reducing customer confusion over McAfee.com. S&P is putting its estimates under review. The new CEO has done a solid job of restoring the company's execution and credibility. Despite premium valuation, with a strong brand name, solid products, and about $5.50 per share in cash, S&P would hold Network Associates.

Audiovox (VOXX): Maintains 3 STARS (hold)

Analyst: Ari Bensinger

The company revised its November quarter loss per share to $0.16 from a previously reported $0.10 loss to reflect an additional $1.2 million charge related to its wireless inventory. The full-year 2001 loss per share now stands at $0.38 vs. the previously reported $0.32. The wireless market will remain challenging throughout 2002, as subscriber growth decelerates due to higher overall penetration rates, and as pricing pressures intensify due to increased competition. Still, at only 0.1 times S&P's fiscal 2002 sales estimate and well under the book value of $14 per share, S&P thinks the depressed stock price discounts Audiovox's troubles.


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