Markets & Finance

Still Hold Caterpillar


Caterpillar (CAT): Maintains 3 STARS (hold)

Analyst: Robert Friedman

The earthmoving equipment/diesel engine-making giant posted a 51% first quarter reported EPS decline, to $0.23, mostly on under-absorption of fixed costs from a 9.3% drop-off in first quarter machinery & equipment sales. Caterpillar, along with other global heavy equipment makers, are contending with ongoing weakness in the highly cyclical, mature, competitive North American and European markets. Despite the mediocre economics of most of Caterpillar's businesses, S&P still sees the company able to post a respectable 8% long term free cash growth and a 15% return on equity. However, shares are near their $55 per share fair value estimate.

Parametric Technology (PMTC): Reiterates 3 STARS (hold)

Analyst: Jonathan Rudy

The company posted a March-quarter pro forma loss per share of $0.02 vs. earnings per share of $0.09 -- a penny below estimates. Revenue of $185 million was below S&P's estimates. Parametric was negatively impacted by continued weakness in the manufacturing sector. S&P anticipates a low double-digit revenue decline in fiscal 2002 (Sept.). S&P is lowering its fiscal 2002 and fiscal 2003 operating EPS estimates to $0.02 and $0.22, from $0.18 and $0.28, respectively. Shares are trading at a discount to peers at 1.9 times revenues. With nearly $200 million in cash/investments and no debt, S&P would hold Parametric.

Gannett Co. (GCI): Maintains 5 STARS (buy)

Analyst: William Donald

The publishing giant posted earnings per share of $0.91 vs. $0.85, despite a 3% decline in revenue and 5% lower operating cash flow. With a sharp drop in interest cost, net income gained 8% and free cash flow rose 6%. Cost-cutting and lower average newsprint prices also is contributing to 2002 gains. S&P sees a slight gain in advertising revenues for full year 2002, and is raising the 2002 EPS target to $4.35 from $4.26.. S&P also is projecting a 15% gain to $5.00 in 2003. Gannett is trading at 18 times the 2002 estimate and 15 times the 2003 estimate, compared to a 20 times average estimate in the last three years. Also, shares are trading well below peers' estimates. The 12-month target: $86-94.

Texas Instruments (TXN): Reiterates 4 STARS (accumulate)

Analyst: Thomas Smith

Shares are up on news of a return to pro forma profitability, and book-to-bill above 1.0. The semiconductor group rose on order strength at Texas Instruments and also at equipment supplier Novellus. TI confirmed that chips for wireless communications is recovering on track, while wireline communications areas are slower. S&P is raising the pro forma 2002 estimate to $0.29, from $0.15, and hiking the 2003 estimate to $0.75, from $0.65. At 45 times tht 2003 estimate, S&P says valuation is twice the market but in line with peers. Prospects for analog and digital service provider (DSP) chip categories are bright as the industry enters multi-year expansion.

General Electric (GE): Reiterates 3 STARS (hold)

Analyst: Robert Friedman

There's more trouble in Paradise. GE Capital, the company's enormous financing arm and erstwhile revenue growth engine, announced big restructuring, including layoffs totaling 8% of its workforce. Regardless of whether GE identifies separate charges related to the restructuring of GE Capital, S&P would advise including a charge in calculation of core earnings per share. Although GE's stock is off almost 50% from late 2000 highs, S&P continues to recommend investors resist the temptation to increase positions. S&P's cash flow models value GE shares roughly at $26-$33.

National Commerce Financial (NCF): Reiterates 5 STARS (buy)

Analyst: E. Momios

The company posted first quarter GAAP EPS up 44% to $0.36. First quarter operating cash earnings per share rose 23% to $0.43. Core deposits rose 22%. Loans were up 11%. National Commercie will open 19 branches at Kroger supermarket stores in metro Atlanta (a $50 billion deposit market) in 2002. Loan quality still is strong. Nonperformers are 0.16% of total assets. Net chargeoffs are 0.26% of average loans (0.22% in the first quarter of 2001). Allowance is at 1.31% of total loans, vs. 1.30%. S&P will look for 2002 GAAP EPS of $1.55, and sees 2003's at $1.75. At 1.26 times the projected five-year growth rate, and at discount to market and peers, S&P says buy these shares.

FleetBoston Financial (FBF): Maintains 3 STARS (hold)

Analyst: S. Biggar

The company posted first quarter earnings per share of $0.70 vs. $0.71, in line with estimate. But the big news is the plan to sell its Robertson Stephens (RS) unit, and refocus its strategy on personal financial services and wholesale banking in a bid to have a less volatile earnings stream. Though the timing is questionable, S&P applauds these moves to lower its risk profile. Still, S&P believes the ongoing drag from Argentina operations and the continued reliance on other capital markets businesses will limit share appreciation. S&P says its will also take time to reallocate the capital from the Robertson Stephens sale. S&P is lowering the 2002 EPS estimate $0.15 to $3.00.

Sprint PCS (PCS): Maintains 3 STARS (hold)

Analyst: T. Rosenbluth

The company posted a first quarter loss of $0.15 vs. a $0.40 loss, ahead of S&P and the Street's estimate Net subscriber additions were 725,000, in line with guidance. Average revenue per user was relatively stable at $60 Monthly churn rate was 3.0% vs. 2.5%, but steady from the fourth quarter. EBITDA rose strongly to $640 million on lower handset upgrade costs. However, bad debt expense and days sales outstanding (DSO) were higher amid subprime ClearPay customers. The results are positive, but S&P remain concerned over ClearPay's profitability and hefty network build-out costs. Shares are O.K. to hold at slightly below peers on an enterprise value to revenue basis.


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