Markets & Finance

S&P Says Hold GM and Ford


General Motors (GM): Maintains 3 STARS (hold)

Analyst: Efraim Levy

January vehicle sales dropped 2%. GM's light truck sales fell 19%, but cars climbed 24%. Ford sales were up 4%. GM's truck weakness reflected difficult comparisons to January 2002 demand, aggressive incentives, and strong sales in December 2002 that pulled ahead volume and limited inventory for certain products. In contrast, sedans benefited from easier year-ago comparisons and higher fleet demand. GM is maintaining its production outlook for the first quarter. S&P forecasts 2003 light vehicle sales of 16.4 million.

Ford (F): Maintains 3 STARS (hold)

Analyst: Efraim Levy

January sales volume rose 4.1% from a year ago. Car volume gains of 5.6% outpaced 3.3% higher truck sales. The important F-Series truck sales were up modestly. A refreshed lineup helped Lincoln cars and trucks surge 24%, but Jaguar and Land Rover slumped against strong year-ago comparisons. Sales later in the year should benefit from new product introductions in the fall. S&P expects incentives to remain at high levels, supporting sales. For 2003, S&P sees industry light vehicle sales volume of 16.4 million.

Brown-Forman (BF): Maintains 3 STARS (hold)

Analyst: Howard Choe

The company announced a dutch auction tender offer. It will buy up to 8.3 million shares (1.5 million Class A and 6.8 million Class B), representing 12% of shares outstanding, at $63-$73. This marks the first occasion in 10 years that the company has set a plan to buy back equity. While S&P is encouraged by management's confidence in the company's long-term outlook, further enthusiasm is tempered by the modest outlook for Brown-Forman's consumer business and valuation. S&P views the shares as fairly valued at 19 times S&P's $3.61 fiscal 2003 (April) earnings per share estimate, above peers.

Boeing (BA) and Alliant Techsystems (ATK): Maintains 3 STARS (hold); Lockheed Martin (LMT): Reiterates 1 STAR (sell)

Analyst: Robert Friedman

S&P expects NASA to suspend the Space Shuttle program indefinitely, but doesn't think NASA's actions will materially affect the already mediocre long-term prospects of Boeing and Lockheed Martin: NASA/shuttle-related sales account for only 4% of Boeing's total sales and 3% of Lockheed's total sales. Since Alliant generates 17% of its revenues from Space Shuttle program sales, it will be more adversely affected. However, despite Monday's drop, S&P thinks Alliant's stock is now only nearing its fair market value.

Mattel (MAT): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Thomas Graves

Before charges, the toy maker posted fourth quarter earnings per share of 43 cents vs. the pro forma 35 cents -- above S&P's estimates. S&P is encouraged by a 7% sales rise and the extent of improvement in Mattel's margins. In 2003, S&P looks for strength in Mattel's core brands, plus further cost reductions, to drive earnings per share growth. However, with some commodity cost pressure expected, S&P is keeping the 2003 earnings per share projection at $1.24. After Monday's price rise, the stock is at a moderate price-earnings premium to the S&P 500 and is relatively close to S&P's discounted cash flow valuation. Thus, S&P doesn't advise adding to positions.

Accredo Health (ACDO): Maintains 3 STARS (hold)

Analyst: Michael Santicchia

Accredo posted December quarter earnings per share of 35 cents vs. 18 cents. Results were driven by pulmonary arterial hypertension and hemophilia sales. Gross margin was steady at 20% on a favorable product mix. S&P is lowering its fiscal 2003 (June) revenue projection to $1.45 billion from $1.50 billion on lower expected sales of Synagis and Avonex. However S&P still sees fiscal 2003 earnings per share at $1.36 on improving gross margin. S&P also sees a fiscal 2004 stock options expense of 18 cents, based on S&P's Core earnings per share, which reduces the fiscal 2004 earnings per share by 13%. At a high price-earnings multiple of 24 times S&P's Core fiscal 2003 earnings per share of $1.19, S&P is keeping a cautious stance on the shares.

Wendy's International (WEN): Reiterates 5 STARS (buy)

Analyst: Dennis Milton

Shares fell Monday after Wendy's projected 7% to 10% earnings per share growth in 2003 -- below Wall Street's forecasts. Same-store sales at the Wendy's chain fell 3.5% in January amid harsh winter weather. As a result of the weak January sales performance and a planned increase in equipment investment at the company's Tim Horton's chain, S&P is reducing the 2003 earnings per share estimate by four cents, to $2.08. At less than 13 times this estimate, shares trade at a significant discount to the overall market despite Wendy's excellent operating history and bright growth prospects.


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