Markets & Finance

S&P Upgrades Boston Properties


Boston Properties (BXP): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Raymond Mathis

Boston Properties posted fourth quarter operating earnings per share of 67 cents vs. 53 cents, beating S&P's estimate. Funds from operations per share were $1.14. The acquisition of properties that were fully occupied by credit-quality tenants with long-term leases is paying off. The year-end 6.1% vacancy rate is one-third that of peers' rates. With a low 2003 lease turnover, and office space net absorption turning positive, S&P has cut its risk premium assumption for valuation. S&P now thinks the company is trading below intrinsic value, and deserves a premium vs. peers. Shares offer superior total return.

Siebel Systems (SEBL): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

As of Tuesday, CEO Tom Siebel cancelled a portion of his outstanding stock options in order to reduce dilution to existing shareholders. The total covered about 26 million shares, which were valued at approximately $56 million. As a result, the company will take a 2003 non-cash charge of $250 million, related to the acceleration of the amortization of remaining deferred compensation associated with the cancelled options. Despite another positive step to help mitigate future dilution, Siebel's earnings per share dilution from options remains above peer levels.

DoubleClick (DCLK): Maintains 3 STARS (hold)

Analyst: Scott Kessler

Before a restructuring charge, a one-time investment gain, and intangible amortization, DoubleClick posted fourth quarter earnings per share of five cents vs. one cent -- four cents better than estimates. Revenues fell 31%, largely reflecting the divestiture of media businesses. Revenues from the two remaining segments fell only 10%, with Abacus and DARTmail performing well. Although DoubleClick again controlled costs, earnings per share benefited by two cents a share from other favorable income and tax items. Despite uncertain demand, with operating profits and with net cash and securities per share of $4.32, S&P is keeping its hold opinion.

Motorola (MOT): Reiterates 3 STARS (hold)

Analyst: Ari Bensinger

Before special items, Motorola posted fourth quarter earnings per share of 13 cents vs. a four-cent loss -- three cents above the Street's mean. Sales advanced 18% from the third quarter, led by strong results in the wireless handset and network divisions. However, gross margin narrowed 256 basis points despite the higher sales volume and cost cuts. The cell-phone maker confirmed 2003 earnings per share guidance at 40 cents, but sees March quarter earnings per share at breakeven to two cents, below S&P's estimate of five cents. Given the recent deterioration in profitability, Motorola has a tough road ahead to meet guidance. But at 0.7 times S&P's 2003 sales estimate, below the peer average, S&P says Motorola is O.K. to hold.

J.P. Morgan Chase (JPM): Maintains 2 STARS (avoid)

Analyst: Stephen Biggar

The bank posted a fourth quarter loss of 20 cents, vs. profit of one cent, well below the consensus. Results included $1.3 billion of charges mostly related to an Enron surety settlement and litigation reserve. The rebound in trading revenues was offset by severance costs, and the company's operating environment remains lackluster given its heavy capital markets-exposed business mix. With continued elevated credit losses and unlikely near-term improvement at this investment bank, earnings are expected to remain depressed, which should continue to weigh on J.P. Morgan's share price.

Xilinx (XLNX): Maintains 4 STARS (accumulate)

Analyst: Thomas Smith

The chip maker posted third quarter fiscal 2003 (March) earnings per share of 12 cents (excluding 13 cents in charges, mainly for a real estate writedown) vs. three cents -- in line with consensus. Revenue rose 24% year over year and 2% quarter over quarter. Storage and consumer segments rose to equal communications, demonstrating greater market diversity. S&P is lowering its fiscal 2003 earnings per share estimate (excluding charges) by a penny to 48 cents, and is trimming the fiscal 2004 estimate to 70 cents from 75 cents. The lack of debt, market share gains, and wide margins are positives. Xilinx shares are trading at an above-market price-earnings multiple, at 36 times S&P's calendar 2003 estimate of 63 cents and 24 times S&P's 94 cents 2004 earnings per share estimate, tempering S&P's enthusiasm.


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