Markets & Finance

S&P Ups Axcelis Technologies to Hold


Axcelis Technologies (ACLS): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Richard Tortoriello

Axcelis posted a fourth quarter loss per share of seven cents, vs. a loss of 18 cents -- a penny better than the Street's mean. Sales rose 33%, but fell 30% from the third quarter. Axcelis guided for a 15% to 30% sales rise in first quarter, aided by sales in Japan, Korea, and China. While prospects are improving, visibility beyond the first quarter remains limited and competition is strong. S&P expects a loss per share of 16 cents in 2003 and earnings per share of 41 cents in 2004. At 1.4 times the book value, Axcelis is trading at industry cycle-trough lows, and with $1.90 per share in cash and modest debt, S&P views the shares as worth holding.

Raytheon (RTN): Maintains 3 STARS (hold)

Analyst: Robert Friedman

Strong U.S. military demand for missiles and electronics and the staunching of red ink at Raytheon's business jet-making operations allowed this military weapons behemoth to post a 14% rise in preliminary economic earnings per share. Moreover, its all-important free cash flow from continuing operations rose substantially, to $1.6 billion. However, S&P has a tempered view of defense industry fundamentals, and doesn't think Raytheon's strong near-term results are sustainable. S&P's free cash models continue to appraise Raytheon at $25 to $29 per share.

Starbucks (SBUX): Maintains 2 STARS (avoid)

Analyst: Dennis Milton

The company posted December quarter earnings per share of 20 cents, up 31% from a year ago (before a one-time gain), and a penny above S&P's estimate. Revenues grew 25% on more stores in operation and 9% growth in same-store sales. S&P is increasing the fiscal 2003 (Sept.) earnings per share estimate by a penny, to 68 cents. At 33 times this estimate, shares trade at a premium to the overall market. S&P thinks Starbucks has excellent growth prospects, but expects little six-to-12 months upside for its shares. Even before Friday's rise, S&P's cash-flow model had the stock near its intrinsic value.

AmerisourceBergen (ABC): Upgrades to 5 STARS (buy) from 3 STARS (hold)

Analyst: Phillip Seligman

The pharmaceutical services company posted operating earnings per share of 83 cents vs. 67 cents -- a penny above the Street's estimates. Drug distribution revenues rose 14%, at the high end of the 11% to 14% growth the company guided for all of fiscal 2003 (Sept.). Amerisource's gross margins will likely continue to contract, but operating margin should widen on merger integration and productivity plans into fiscal 2004, and on its PharMerica institutional pharmacy business. The company looks to expand its high-value specialty business internally and via acquisitions. Shares are compelling at 14 times S&P's fiscal 2003 estimate of $3.95 vs. the 20% long-term growth.

CMS Energy (CMS): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Justin McCann

S&P sees little value in the power company's shares, following CMS' announcement Friday that it will suspend its dividend and report a a worse-than-expected loss for 2002. CMS also warned of sharply lower operating earnings for 2003. The expected reported loss for 2002 has been increased from about $3 per share to about $4.50. For 2003, S&P cut its earnings per share estimate for ongoing operations by 55 cents to 85 cents. After anticipated losses from asset sales and discontinued operations, S&P expects reported earnings to be about five cents a share.

Amazon.com (AMZN): Maintains 3 STARS (hold)

Analyst: William Donald

Amazon posted one cent vs. one cent fourth quarter operating earnings per share on a 28% sales jump. Pro forma earnings per share was 19 cents vs. nine cents, exceeding expectations. Amazon sees a 15%-plus sales rise in 2003, and more than $115 million in pro forma net profits (27 cents a share), which excludes noncash and nonrecurring items. S&P raised its 2003 estimate by six cents, to 30 cents. The online retailer seems able to sustain top-line growth and improve its profitability indefinitely, but S&P thinks the very high price-earnings multiple of 75 -- based on the 2003 earnings estimate -- and Amazon's $2.3 billion in debt continues to warrant investor conservatism.


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