Markets & Finance

Buy Chubb


Chubb (CB): Reiterates 5 STARS (buy)

Analyst: Catherine Seifert

Shares are up as the company named John Finnegan, former chairman of General Motors Acceptance Corp., as Chubb's new President and CEO, effective Dec. 1. Director Joel Cohen will become chairman. Although S&P is surprised that Chubb went outside the insurance industry for its new leader, S&P views the move as positive, as it resolves Chubb's management succession issue. Now that Chubb has put behind it both its asbestos and management issues, the shares are well positioned for future growth. Chubb is undervalued at 11 times S&P's 2003 estimate of $5.50. The 12-month share price target is $72.

General Electric (GE) and Cablevision (CVC): Reiterates 3 STARS (hold)

Analysts: Robert Friedman, Howard Choe

GE's NBC television network unit will buy Bravo, the arts and entertainment cable channel, from cash-strapped Cablevision and MGM.

Given Cablevision's track record, an 11th-hour hitch is always possible. However, assuming GE closes the deal, the upmarket Bravo channel, which reaches 60 million U.S. subscribers, would give NBC the ability to show its dramas and comedies via cable.

Although GE will reportedly pay $1.25 billion in cash and stock, Bravo's financial contribution to GE would be miniscule. For Cablevision's 80% stake, GE will give it approximately 13 million GE shares and 53 million Cablevision shares. This deal improves Cablevision's liquidity, since it can monetize around $400 million in GE stock to address its 2003 funding needs. However, use of the proceeds is uncertain as Cablevision still plans to launch DBS Satellite.

With high debt, cable subscriber losses and the overhang of a possible Fox put of regional programming partners' assets, S&P remains neutral on Cablevision. S&P appraises GE as worth between $23 and $30 per share.

Fair Isaac (FIC): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Scott Kessler

Shares aren't benefiting from a rally Monday, as investors are perhaps rotating out of perceived defensive plays that have largely held up throughout the bear market. However, Fair Issac is an excellent growth story. Driven by demand for credit-risk and fraud prevention solutions, S&P sees long-term annual growth of 15%. Operating margin should widen to a solid 27% in fiscal 2003 (Sept.) on benefits from the August acquisition of HNC Software. S&P's intrinsic value estimate, using discounted cash-flow analysis, is 20% above the stock's price.

Microsoft (MSFT): Upgraded to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Jonathan Rudy

Following a federal judge's decision on Nov. 1 to uphold Microsoft's agreement with the Justice Department, we believe that aside from civil suits, the uncertainty surrounding the case has largely been removed and investors can now focus on the software giant's strong fundamentals. Microsoft continues to grow earnings in the low double-digits despite a very challenging economy, especially in the enterprise market. With a pristine balance sheet and a high quality of earnings, we would buy the market leader at a notable discount to fair value of $64-70.

Analog Devices (ADI): Upgraded to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Thomas Smith

Despite a dampening of chip sales growth in the second half of 2002, we believe the semiconductor industry expansion will pick up in 2003-04 along with economic growth. ADI is a leader in high-end analog semiconductors and digital signal processors (DSP), segments that should outpace overall chip sales. The company is shifting to larger-sized wafers, which should boost margins. Trading at 28 times our $1.04 calendar 2004 and 18 times our $1.65 2004 estimate, ADI shares are valued above the overall market but below high-end analog peers.


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