Markets & Finance

S&P Upgrades Teradyne to Hold


Teradyne (TER): Upgrades to 3 STARS (hold) from 1 STAR (sell)

Analyst: Richard Tortoriello

Both Teradyne and competitor Agilent have indicated that utilization rates on their testers are relatively high as chip unit volumes rise and advanced chips require more leading-edge test capacity. S&P doesn't see Teradyne reaching profitability until the third quarter of 2003, but thinks order rates have bottomed. S&P also believes Teradyne has reached cycle-trough valuations at 1.5 times sales and one times its book value in October, below previous troughs on book value but higher on a price-to-sales ratio. Amid expected slow-growth environment, S&P would hold Teradyne.

Agilent (A): Reiterates 3 STARS (hold)

Analyst: Megan Graham Hackett

At its analyst meeting Monday, Agilent reiterated its plans for reaching breakeven sales at $1.57 billion per quarter as it exits fiscal 2003 (Oct.). It didn't shed much light on the current environment and instead talked about achieving sales growth of 10%-15% in fiscal 2003, regardless of how the economy fares. The company's long-term targets include 15% operating margin and 25% return on invested capital. The company's levers include selling, general and administrative cuts and growth via new products, aided by targeted R&D investments. S&P has cut its fiscal 2003 earnings per share estimate by 14 cents, to six cents. At a price/sales multiple of 1.6, below peers, shares are O.K. to hold.

EchoStar Communications (DISH) and Hughes Electronics (GMH): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi

Under the settlement terms, EchoStar has paid $600 million in cash to GM's Hughes Electronics. Hughes will retain its 81% ownership interest in PanAmSat, a provider of global video and data broadcasting services via satellite. The FCC opposed the deal even as the merger completion date loomed. EchoStar shares are up sharply Tuesday as the news looks like a long-term positive for the debt-laden company, likely allowing it to better focus on its core competencies. With Hughes Electronics now back in play, possible bidders include News Corp., but new offers may not be as compelling for Hughes Electronics.

UAL Corp. (UAL): Dropping coverage

Analyst: James Corridore

With United Airlines parent UAL filing for bankruptcy Monday, S&P is dropping coverage to make room for more attractive issues. S&P had carried an avoid recommendation on the stock. Despite the Chapter 11 filing, the shares are up Tuesday as investors look forward to changes at UAL. S&P strongly cautions investors that current stock stakes will almost certainly become worthless as UAL reorganizes, and new stock stakes are likely to be issued to debt holders and new investors. This is par for the course in bankruptcy proceedings.

Boston Scientific (BSX): Maintains 5 STARS (buy)

Analyst: Robert Gold

The company entered a strategic alliance with Advanced Neuromodulation Systems under which Boston Scientific will distribute in Japan a line of devices used to treat chronic pain. ANSI's electrical devices deliver current to targeted nerves, while its infusion pumps deliver small doses of drugs to targeted sites throughout the body. Its principal products are the Renew radio frequency device and the Genesis implantable pulse generator for spinal cord stimulation, and the AccuRx implantable drug infusion pump.

Nokia (NOK): Reiterates 2 STARS (avoid)

Analyst: Ari Bensinger

Nokia sees December quarter sales at 8.8 billion euros to nine billion euros, below the prior guidance of 8.9 billion euros to 9.2 billion euros. Handset volumes are on track to reach 400 million units in 2002, but holiday sales are trending toward lower-end phones. The network division continues to struggle, with operating margins expected to be zero vs. 5% in the September quarter. Still, with better than anticipated handset margins, Nokia confirmed its prior December quarter earnings per share guidance of 23 euro cents to 25 euro cents. Nokia is executing superbly, but at an above-peer-average 22 times S&P's 2003 earnings per share estimate of 79 U.S. cents, S&P would avoid the shares in this difficult environment.

Avon Products (AVP): Reiterates 4 STARS (accumulate)

Analyst: Howard Choe

The beauty products catalog company raised its fourth quarter earnings per share guidance by a penny. Current strength is driven by robust beauty division sales, sales representative growth, and cost savings. Avon's estimate for 2003 assumes at least 10% local currency sales growth and a negative 7% foreign exchange impact. It expects earnings per share to rise 10% to $2.54. S&P believe the sales and foreign exchange assumptions to be overly conservative and still sees 2003 earnings per share at $2.57. With industry leading volume growth and solid execution, Avon is attractive at 20 times S&P's 2003 estimate, slightly below personal care peers.


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