Markets & Finance

S&P Upgrades Gannett to 'Buy'


Gannett (GCI): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: William Donald

S&P's opinion of newspaper stocks now, particularly Gannett, is positive. The company is up 12% for the year to date, and should remain at the forefront of a market recovery as newspapers benefit from the strengthening economy and improving demand for advertising. Cost-cuts and lower average newsprint prices will also contribute to 2002 gains. S&P sees $4.26 2002 earnings per share -- up 35% from 2001's $3.14. S&P also projects 16% average EPS gains each year 2003 through 2005. Gannett is trading at 18 times the 2002 estimate and 16 times the 2003 estimate, compared to 20 times the average in the last three years. The 12-month target is $85 to 89.

Taro Pharmaceutical (TARO): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Michael Santicchia

The stock is down over 30% in 2002. S&P believes weakness reflects an increased uncertainty on the timing of FDA approval of the company's 12 abbreviated new drug applications. Despite its robust pipeline, growth potential and strong management track record, S&P believes that as investors rotate out of defensive shares and into more economically sensitive issues, Taro's stock will continue to be under pressure.

Solectron (SLR): Maintains 3 STARS (hold)

Analyst: Richard Stice

The company announced an agreement with Lucent Technologies to be the primary manufacturer of advanced optical systems. Solectron will purchase equipment and inventory for $125 million. At anticipated production levels, the deal would add $2 billion to Solectron's sales over three years. While the new business win is important, S&P believes Solectron should focus its efforts on lowering its operating expenses to thwart competition. S&P also remains cautious near-term given manufacturing weakness and Solectron's high relative debt load. But with $4 per share in cash and short-term investments, it's O.K. to hold shares.

IBM Corp. (IBM)

The Wall Street Journal on Thursday said IBM received comment letters from the SEC about IBM's disclosures in its 1999 Annual Report and Q1 2000. The disclosures regarded the sale of IBM's Global Networks sale and pension income. The financials weren't restated and IBM has since expanded its annual report disclosures. S&P notes IBM also includes items which depress operating earnings, such as goodwill amortization and restructuring/asset impairment charges. With IBM generating strong cash flow from operations, at 19 times S&P's 2003 estimate -- below the market peers, S&P says continue to buy IBM.

Juniper Networks (JNPR): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

As expected, the maker of Internet gear preannounced a Q1 shortfall. Juniper now sees revenues of $120-$125 million vs. the prior guidance of $150-$155 million. It sees EPS slightly above breakeven, vs. the prior $0.03, and should post a positive cash flow from operations. The company cited project push-outs by carriers because of tight capital, but noted the diversity of customer mix has improved and that it maintained/gained share in Q1. Pricing remains stable. S&P is cutting the 2002 EPS estimate by $0.11, to $0.08. Juniper continues to execute well in a difficult environment, but with a price-share multiple of four, in line with peers, S&P says hold Juniper.

C.R. Bard (BCR): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Robert Gold

The manufacturer of medical, surgical, diagnostic and patient care devices expected to generate a 2002 sales rise of about 7%, with low double-digit EPS expansion driven by reduced operating costs. Though the product line has consistent growth, S&P does not see potential for upside surprises while its R&D pipeline remains relatively anemic. With few fundamental catalysts, S&P feels the valuation is vulnerable to compression with Bard trading at 18 times S&P's 2002 EPS estimate of $3.27 and 14x times the estimated free-cash flow.


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