Markets & Finance

S&P Upgrades Accredo Health to Buy


Accredo Health (ACDO): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Michael Santicchia

The pharmacy services firm posted March quarter earnings per share of 37 cents vs. 23 cents, before a special after-tax charge of $36 million to increase its allowance for doubtful accounts. Revenues came in slightly higher than S&P expected and gross margins were up 60 basis points sequentially as a result of an improved product mix and lower acquisition costs. S&P is upping the fiscal 2003 (June) earnings per share estimate to $1.34 from $1.20 on improving margins. At a below-market price-earnings multiple of 12 times S&P's fiscal 2004 earnings per share estimate of $1.57, S&P views Accredo shares as attractive.

Oxford Health (OHP): Maintains 3 STARS (hold)

Analyst: Phillip Seligman

The health benefits company posted first-quarter operating earnings per share of $1.06, before a 7-cent investment gain, vs. 75 cents a year ago -- 17 cents above S&P's estimate on 15% higher commercial premium revenue. The medical loss ratio declined on moderated medical cost trend and cost initiatives. Less shares also helped. For full-year 2003, Oxford sees enrollment unchanged from the first quarter, and still sees selling, general, and administrative costs of 10.8%. Also, Oxford lowered its medical loss ratio to 79%-80% from 80%-81%, and raised the earnings per share estimate by 17 cents to a range of $4.17 to $4.27. S&P sees risk from weak jobs data and rising competition in the New York metro area. But S&P pegs Oxford as a worthwhile holding, with shares trading at eight times S&P's 2003 estimate of $4.25, below peers.

Cox Communications (COX): Maintains 3 STARS (hold)

Analyst: Tuna Amobi

Cox's shares are off Monday after the broadband company posted a five-cent first-quarter loss per share on 16% higher revenue, vs. 22 cents earnings per share a year ago, in line with S&P's estimate but two cents wider than the Street's mean. As analog video stagnates, growth should come from bundled high-speed data and telephony, and from digital video-on-demand and HDTV. Cox says aggressive digital subscriber line pricing from the Baby Bells is not slowing momentum. But rising broadband competition could press pricing, even in the near term. Cox may post modest positive 2003 free cash, but S&P views its enterprise value to estimated 2003 EBITDA multiple of 12 as ample.

Juniper Networks (JNPR): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

Juniper announced a joint marketing/development partnership with Lucent Technologies for service providers. On its face, the deal looks compelling to S&P, with both firms able to leverage each other's product portfolios. But S&P notes that marketing/distribution pacts in technology in the past have not always been successful. The deal is not exclusive, and S&P believes this reflects each firm's pursuit of alliances to offer broader solutions to customers. S&P isn't making any change to its estimates. With Juniper trading at a price/sales multiple of eight -- above peers -- S&P wouldn't add to positions.

Boeing (BA): Reiterates 5 STARS (buy)

Analyst: Robert Friedman

S&P would advise investors to discount fears about pending government probes into Boeing's alleged illegal receipt of proprietary Lockheed Martin information while securing a large 1999 military spy satellite contract. Although the details are still sketchy, even if Boeing is found culpable, S&P doesn't think the Pentagon will cancel its existing Boeing contracts, nor withhold any big future contracts. Moreover, with cash flow models already assuming modest long-term earnings per share growth rates and return on equity, S&P thinks there's sufficient margin of safety in its $38 to $43 fair value appraisals.

USA Interactive (USAI): Reiterates 5 STARS (buy)

Analyst: Scott Kessler

Media giant USA Interactive on Monday morning announced an agreement to acquire online loan marketplace operator LendingTree, which uses the Internet to facilitate consumer credit transactions, in a deal valued at $734 million in stock. LendingTree provides an entrance into the financial services and real estate verticals, which S&P views as attractive for USA. S&P thinks the transaction would be largely neutral to USA's 2003 financials, but potentially provide revenue and adjusted earnings per share upside in 2004. Using the Street's consensus estimates, USA would be buying LendingTree at what S&P considers a reasonable p-e-growth ratio of one.


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