Markets & Finance

S&P Upgrades AmeriCredit to Accumulate


AmeriCredit (ACF): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Robert McMillan

The auto loan lender's March quarter earnings per share of 9 cents vs. $1.02,was well above expectations. It suggests that AmeriCredit is making credible progress on its turnaround plan, and is apparently on target to be cash flow positive in the June quarter. Although annualized net chargeoffs rose to 7.6% from the previous quarter's 5.8%, "over 60-day" delinquencies fell to 2.7%, from 4.1%. S&P is raising its fiscal 2003 (June) earnings per share estimate to 46 cents from 34 cents, and is raising fiscal 2004's to $1.16 from 49 cents. S&P thinks the shares, at 5.5 times S&P's fiscal 2004 estimate, are trading well below AmeriCredit's 16% long-term growth rate and will outperform the market.

Intuit (INTU): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Scott Kessler

The final weeks of Intuit's tax season, according to S&P's research, may have been weaker than previously expected in terms of retail sales of Turbo Tax, website traffic and activity, and electronic filings. S&P thinks this is consistent with comments that H&R Block made about a week ago. Given S&P's view that tax-related revenues and profits are very important components of Intuit's April quarter results, S&P is taking a more conservative stance on the shares in advance of the quarter's conclusion. However, the shares trade a discount to S&P's calculation of their intrinsic value.

Sara Lee (SLE): Maintains 4 STARS (accumulate)

Analyst: Richard Joy

Sara Lee reported March quarter earnings per share of 33 cents vs. 31 cents -- a penny per share below expectations. Top-line trends were soft, with unit volumes down 2% amid the challenging economic environment. Cash flow was robust, and should continue to fund debt reduction and share repurchases. S&P is reducing its fiscal 2003 (June) earnings per share estimate by 10 cents, to $1.50. Despite reduced expectations, S&P views Thursday's sell-off as an overreaction. Trading at only 11.4 times the calendar 2003 earnings per share estimate of $1.55 -- a sharp discount to the S&P 500 and peers -- and with a 3.5% dividend yield, S&P views the food and snack manufacturer as an attractive stock.

Kellogg (K): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Richard Joy

Kellogg reported first-quarter earnings per share of 40 cents vs. 35 cents before special gain, 1 cent better than expected. The cereal maker reported solid growth across businesses, with U.S. cereal and snacks both up 4%, and currency-neutral international sales up 5%. Latin America sales gained 13%, benefiting from strength in Mexico, Central America, and the Caribbean. The strong start to the year gives S&P more comfort with its 2003 earnings per share estimate of $1.90, a 10% gain over 2002. At 17 times that estimate, in line with the S&P 500, S&P views Kellogg as attractive on brand momentum, strong cash flows, growth potential, and earnings visibility.

Alltel (AT): Maintains 5 STARS (buy)

Analyst: Todd Rosenbluth

Alltel posted first-quarter earnings per share of 85 cents vs. 69 cents, including 12 cents from business sold in April, beating S&P's estimate. Wireline revenue was up, aided by Kentucky properties and only a modest sequential decline in access lines. Though wireless internal net additions rose only 48,300, S&P is encouraged that revenue per user held steady, as peers struggled. In S&P's view, Alltel's EBITDA margins are among the industry's best. S&P thinks that with relatively strong earnings quality, and with Alltel facing less competitive pressure than the other regional bell operating carriers, Alltel is appealing at a modest p-e and cash flow premium to peers.

KLA-Tencor (KLAC): Maintains 4 STARS (accumulate)

Analyst: Richard Tortoriello

The chip-equipment maker posted March quarter earnings per share of 14 cents vs. 17 cents, on a 15% sales decline. Orders fell 7%, and KLA expects flat June quarter results vs. the March quarter. With 0.13 micron yields problematic, wafer inspection tool sales are driving results. KLA further lowered its selling, general, and administrative costs and R&D costs in the March quarter, and improved management of cash-flow working capital. Amid an industry pause, S&P is lowering fiscal 2003 (June) earnings per share by 2 cents, to 67 cents , and is cutting the fiscal 2004 estimate by 6 cents, to $1.05. However, with S&P's expectation of an industry rebound in the second half of the year, S&P says KLA is attractive with a p-e of 15, based on S&P's peak earnings per share estimate of $2.80, vs. previous cycle peaks, with p-e's in a range of 21 to 46.


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