Human Genome Sciences (HGSI): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)
Analyst: Frank DiLorenzo
The company posted a proforma loss per share of 33 cents, including an investment impairment -- three cents narrower than S&P's estimate. S&P feels the net cash balance of about $848 million (excluding long-term debt and restricted cash) is sufficient to execute development plans. Guidance on Repifermin development suggests longer development time, with an additional trial likely. S&P doesn't see first potential drug approval until 2006. Based on the net cash position and pipeline potential, S&P feels shares are reasonably priced.
Wachovia (WB): Reiterates 3 STARS (hold) and Prudential Financial (PRU): Reiterates 4 STARS (accumulate)
Analyst: Stephan Biggar, Catherine Seifert
The companies reportedly have ceased talks on forming a joint venture that would merge their brokerage units. S&P was skeptical of such a venture, questioning how it would be structured and profitable while competing effectively. Though not imminent, Wachovia may have to find another solution should the broader separation of brokerage and investment research functions be necessary. S&P expects Prudential to consider alternatives for its brokerage unit as part of a broader restructuring.
OM Group (OMG): Downgrades to 1 STAR (sell) from 3 STARS (hold)
Analyst: Michael Santicchia
The speciality chemical maker posted a loss of $2.52 per share vs. earnings per share of $0.84. It took a $3.31 per share write-down of inventories, based on its revised outlook for cobalt prices. The company announced a restructuring plan to refocus its strategy, discontinue unprofitable operations and reduce costs. S&P thinks the difficult environment will continue for the foreseeable future and expects further deterioration of operating results in the fourth quarter. Despite the decline in the share price, S&P believes OMG presents further significant price downside risks.
Procter & Gamble (PG )
Analyst: Howard Choe
Before charges, the consumer products manufacturer posted September quarter earnings per share of $1.12 vs. 96 cents -- two cents above S&P's and the Street's estimates. Revenue growth was up a strong 11%, with comparable volume rising 10%. Restructuring benefits and lower material prices led to gross and operating margins up 150 and 30 basis points, respectively. S&P expects P&G to sustain its strong volume growth and margin expansion trends in fiscal 2003 (June), allowing the company to maintain its goal of 4%-6% sales and double-digit earnings growth. P&G shares are attractive at 20 times the forward price-earnings multiple, at a discount to the intrinsic value.
Rent-A-Center (RCII): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Michael Santicchia
The electronics and furniture rental company posted third quarter earnings per share of $1.14 vs. 26 cents -- two cents above consensus. On a comparable basis, this represents an earnings per share growth of 70%. Results were driven mainly by better same-store sales than expected and by the benefits from strict ongoing control programs. Cash flow from operations of $93 million were used to reduce debt by $41 million during the third quarter. S&P is raising its 2002 earnings per share to $4.81 from $4.75, mostly on strict cost controls. Valuation is attractive at only nine times S&P's 2002 estimate. However, the potential future risk from litigation tempers S&P's enthusiasm.
Banta Corp. (BN): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)
Analyst: William Donald
The printing and supply-chain management company posted 76 cents vs. 75 cents third quarter earnings per share -- two cents below the Street's consensus. Sales declined 6.8% amid soft economic conditions. Though Banta has won new customers, gained market share and boosted profitability by 54 basis points in the first nine months 2002 vs. the year-earlier period, the company indicated that it currently sees no signs of revenue recovery until late 2003. S&P is lowering its 2002 estimate by five cents to $2.40, and is lowering the 2003 estimate by 18 cents to $2.70. The shares, up 12% year to date, appear reasonably valued at 12 times S&P's 2003 estimate, which are likely to drift near term.