Markets & Finance

S&P Says Buy Siebel


Siebel Systems (SEBL): Maintains 5 STARS (buy)

Analyst: Jonathan Rudy

Shares are down about 9% Tuesday on a preannounced revenue disappointment at Peoplesoft. While the news from PeopleSoft dampened expectations of a sharp IT spending rebound, S&P thinks certain areas of IT budgets -- such as customer relationship management (CRM) software -- remain priorities and should gradually recover. Siebel's execution remains extremely important in this challenging environment. During the 2001 downturn, Siebel aggressively managed expenses and strengthened its position as a market leader. With solid profitability, and a strong balance sheet, S&P would continue to buy this leader of CRM software.

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

Analyst: Frank DiLorenzo

ImClone reported a fourth quarter loss per share of $0.42, much wider than S&P's $0.20 loss estimate due to higher than expected R&D and higher selling, general and administrative costs. Dependent upon progress in obtaining additional data, ImClone could resubmit an application for approval of Erbitux to treat colorectal cancer by early 2003. However, delays have reduced the time between the potential approval of Erbitux and the potential approval of competing products. S&P estimates losses per share of $0.89 for 2002 and $0.30 for 2003. In view of a likely competitive market, S&P considers the shares to be fully priced.

Interstate Bakeries (IBC): Maintains 3 STARS (hold)

Analyst: Richard Joy

The company posted February quarter EPS of $0.32 vs. $0.15, in line with expectations. The results included a $0.02 charge for customer bankruptcy. Net sales rose 1.6%, with bread volumes up 3.3% and snack cakes up 2.2%. Profits are benefiting from improved productivity and expense reduction. The company is buying back 7.4 million common shares from Nestle. Nestle will sell the remaining 7.4 million shares of its Interstate Bakeries stake in a public offering. S&P is keeping the fiscal 2002 (May) EPS estimate at $1.60 and sees fiscal 2003 EPS at $1.95. At 12 times that estimate, Interstate Bakeries shares are worth holding, given the company's improving fundamentals.

Qwest Communications (Q): Keeping 2 STARS (avoid)

Analyst: Todd Rosenbluth

The company will take a $20-$30 billion second quarter goodwill writedown charge, reducing annual amortization expense by $900 million. Qwest says this should not impact debt covenants if its rating is still investment grade. After four closing entries, Qwest restated the fourth quarter of 2001, with the loss widening by $0.01 to $0.32. The company expects SEC actions from an informal review over pro-forma

fourth quarter 2000 results amid its acquisition of U.S. West. The news is disconcerting because of the separate SEC inquiry regarding Qwest's IRU transactions. The company also sees a significant writedown for KPN Qwest. With limited growth, numerous SEC clouds, and trading at high price/expected free cash flow, avoid the shares.

PeopleSoft (PSFT): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

The company expects that revenues will be in the range of $130-135 million, versus S&P's estimate of $161 million. However, PeopleSoft anticipates EPS of $0.14, $0.01 above S&P's estimate. The license revenue shortfall was primarily due to the cautious economic environment. While S&P is disappointed with the news, PeopleSoft 8 has been more successful than S&P previously expected in diversifying the company into customer relationship management and supply chain management categories. S&P is trimming its 2002 EPS estimate to $0.67, from $0.70. With $1.6 billion in cash/investments, and little debt, S&P would hold PeopleSoft.

Noven Pharmaceuticals (NOVN): Keeps 3 STARS (hold)

Analyst: Herman Saftlas

The drug maker completed its Phase III trials on its MethyPatch. Studies show the patch is highly effective against symptoms of Attention Deficit Hyperactivity Disorder. Some 3%-5% of all children in the U.S. are believed to suffer from the disorder. Noven hopes to file a NDA this summer and reach the market by the second half of 2003. However, oral products now dominate the ADHD market. And because of side effects, parents generally are reluctant to begin drug therapy. Noven's U.S. estrogen patch sales are strong, but overseas business still is depressed. Noven is at a significant premium to the specialty drug group.


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