Markets & Finance

Still Accumulate Edison


Compaq Computer (CPQ): Dropping coverage

Analyst: Megan Graham Hackett

Compaq will merge with Hewlett Packard effective Friday. H-P will trade under the stock symbol HPQ on the NYSE beginning Monday. S&P had carried a hold recommendation on Compaq, and has a hold recommendation on H-P.

Edison International (EIX): Maintains 4 STARS (accumulate)

Analyst: Joseph McCann

The company posted first quarter core earnings per share of $0.26 vS. $0.10, $0.04 above S&P's estimate. Results were aided by the absence of year-earlier nuclear outages and lower interest expense. Year-ago first quarter resultes excluded a one-time charge of $2.03 for purchased power costs, then considered unrecoverable. S&P is raising both the 2002 and 2003 EPS estimates by $0.05, to $1.65 and $1.90, respectively. S&P expects Southern California Edison to obtain regulatory approval of its power procurement plan, which would help it return to the investment grade rating needed to resume power purchases.

John Hancock Financial Services (JHF): Reiterates 4 STARS (accumulate)

Analyst: Catherine Seifert

The company posted $0.68 vs. $0.61 first quarter operating earnings per share -- $0.02 shy of S&P's estimate. The 12% revenue decline and adverse trends in life insurance mortality claims were offset by aggressive cost management. S&P remains encouraged by the company's 88% retail annuity sales growth, thanks to strong fixed annuity sales. S&P's $2.90 2002 estimate of operating EPS assumes equity markets will improve and life insurance mortality will resume its normal patterns. At 12 times S&P's our $3.20 operating EPS estimate for 2003, John Hancock is modestly undervalued. The sixt to 12-month price target: $42.

Sapient (SAPE): Maintains 2 STARS (avoid)

Analyst: Scott Kessler

Excluding restructuring, stock-based compensation and amortization costs, the first quarter per-share loss of $0.16 vs. $0.05, was $0.03 worse than S&P's and the Street's projections. Services revenue fell 54%, and 21% from the fourth quarter, reflecting the impact of global economic woes and the adverse effect of restructuring on sales and delivery. Without treatment for reimbursable expenses, gross margin fell to 16.2%, vs. the fourth quarter's 26.9%. Sapient continues to disappoint, and the company guided down for the second quarter. Even with a second quarter estimate of $1.40/share net cash/securities, S&P sees continued operating loses through 2003 and beyond.

Amkor Technology (AMKR): Reiterates 4 STARS (accumulate)

Analyst: Richard Tortoriello

Before a $0.59 asset impairment charge and $0.07 gain, the first quarter loss per share of $0.63 vs. a loss of $0.21, $0.04 was behind the Street. Sales declined 27%, down 0.8% from the fourth quarter. The company guided to a 20% sales rise in the second quarter, and a double-digit rise in the thirda quarter. Amkor is expanding into Japan, Taiwan and China. It added an assembly and test outsourcing agreement with Fujitsu in the first quarter. S&P is widening the 2002 loss per share estimate to $1.42, from $1.30, and is raising the 2003 EPS estimate to $0.60, from $0.50. With outsourcing trend growing, S&P sees shares attractive at 2.9 times the book value, above historical troughs of 1.8 times.

Echostar (DISH): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Howard Choe

After a review of first quarter results and management comments, S&P believes shares lack catalysts to outperform the broader market in the next six to 12 months. The company expects subscriber acquisition costs to be higher than originally planned amid higher equipment subsidies and advertising expenses. And aside from free programming offers, average revenue per subscriber is likely to be pressured by a lack of premium offerings and the oncoming video-on-demand onslaught from cable However, S&P would hold this well-managed and better satellite operator with strong free cash flow.


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