Markets & Finance

S&P Ups Emmis Communications to Accumulate


Emmis Communications (EMMS): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Tuna Amobi

Emmis shares are up sharply after upbeat comments at its August-quarter conference call. S&P concludes that radio and TV ad recoveries are underway, and that Emmis is poised to perform at the high end of the industry. Also, the new Austin radio acquisition is looking solid. Emmis' balance sheet leverage remains well above peers. With a somewhat early return of political spending, S&P is upping the fiscal 2004 (Feb.) earnings per share estimate by 15 cents, to 37 cents, and is raising fiscal 2004's estimate by 6 cents, to 48 cents. After the recent pullback, S&P views Emmis shares as attractive, and still has a $25 12-month target price.

Maytag (MYG): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Amrit Tewary

S&P thinks the rollout of new products, such as Maytag's high-end Neptune drying center by late 2003 or early 2004, should boost profits in 2004 and offset continued weakness in its floorcare unit. At 11 times S&P's 2003 operating earnings per share estimate of $2.26, Maytag is trading at a discount to appliance peers and to its average historical p-e of 14. S&P believes the shares are attractive at current levels, but thinks they should trade at a discount to the average historical p-e because of pension and balance sheet concerns. S&P's 12-month target price of $30 assumes a p-e of 12, based on S&P's 2004 operating earnings per share estimate of $2.52.

Whirlpool (WHR): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Amrit Tewary

S&P believes the recent pullback in Whirlpool's share price gives investors an attractive entry point. S&P thinks low interest rates, recent housing market strength, and an improved economy will likely boost major appliance demand. The improvement in domestic appliance shipments should benefit Whirlpool during the remainder of 2003 and into 2004. S&P is keeping the 2003 earnings per share estimate at $5.71, but is raising the 2004 estimate to $6.13, from $6.00. S&P is raising the 12-month target price to $80, from $78, by applying a p-e multiple of 13 to the 2004 earnings per share estimate.

Benchmark Electronics (BHE): Maintains 4 STARS (accumulate)

Analyst: Richard Stice

Benchmark reaffirmed the third-quarter guidance in the range of $445 to $460 million in revenue, and 44 cents to 48 cents earnings per share, respectively. S&P's estimates are for $454 million in revenue and 45 cents earnings per share. S&P thinks news that Benchmark has made no change to its guidance may ease speculation about its near-term prospects, following Sun Microsystems's pre-announcement of a September-quarter loss; Sun is one of Benchmark's largest customers. S&P continues to believe Benchmark is poised to benefit from a capacity utilization rate above the peer group average and a growing customer base. As a result, S&P advises accumulating the shares. The 12-month target price is $60.

Sun Microsystems (SUNW): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

Sun Micro now sees an October-quarter loss of 7 cents to 10 cents per share, including a 1 cent charge, vs. S&P's 1 cent earnings per share estimate. The lower profit outlook also caused Sun to take a $1 billion non-cash charge to the June quarter as it adjusted its tax assets. S&P says the news is disappointing, but not unexpected, given the competitive pressure on Sun's UNIX offerings; S&P also believes the anticipated launch of a new licensing program in September may have also caused customer deferrals. Still, with cash of $5.7 billion, and shares trading below S&P's $4 12-month target price, based on a price-sales analysis, S&P thinks Sun shares are worth holding.

Safeco (SAFC): Reiterates 3 STARS (hold)

Analyst: Catherine Seifert

S&P is lowering the 2003 estimate by 90 cents, to $2.10, to reflect a 96 cents third-quarter charge that the insurance company plans to take to boost workers compensation reserves, which is partly offset by improved underlying claim trends. Safeco has also placed its life insurance unit up for sale, and plans to cut expenses by $75 million by the end of 2004. S&P estimates the life unit could fetch $1.25 billion to $1.5 billion. S&P applauds these moves, but is concerned over the execution risk, and by Safeco's upside potential amid heightened competitive pressures in the small commercial lines market. The 12 month target price $39.

Roadway (ROAD): Maintains 3 STARS (hold)

Analyst: James Corridore

Roadway posted third-quarter earnings per share of 71 cents before acquisition-related charges, vs. 36 cents, in line with a recent upside preannouncement. Earnings per share benefited from a rate increase, higher tonnage levels, and expense controls. Roadway expects 2003 operating earnings per share of $2.30-$2.60; S&P sees $2.56. S&P expect Roadway's stock to stay in a narrow trading range due to the proposed acquisition by Yellow Corp. A 15% collar in the deal limits the potential upward movement of Roadway's stock. However, since S&P thinks Yellow is an undervalued leader in the less-than-truckload segment, S&P would hold Roadway until the deal closes.

Alliance Capital (AC): Maintains 3 STARS (hold)

Analyst: Robert McMillan

The New York State Attorney General and the Securities and Exchange Commission have contacted Alliance Capital in connection with their investigation into alleged improper and illegal trading schemes in the mutual fund industry. Alliance says it is cooperating, and has suspended two employees. The firm has also formed a special committee to review the facts. This investigation may result in Alliance having to pay fines and penalties, but S&P doesn't expect a deep impact on operations. S&P is maintaining its earnings per share estimates of $1.98 and $2.48 for 2003 and 2004, respectively. The 12-month target price remains $40.


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