Markets & Finance

S&P Upgrades Northwest Airlines to Accumulate


Northwest Airlines (NWAC): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: James Corridore

Northwest posted third-quarter earnings per share of 49 cents, vs. a 55 cents loss, on better cost control than S&P had used in its 90 cents loss per share estimate. Yields benefited from a security-tax holiday. It remains to be seen what yields will be like now that this $5 per segment tax is back in effect. Amid modest industry improvement and cost controls, S&P has narrowed its 2004 loss estimate to $1.50, from $2.00, and expect earnings per share of $1.10 in 2005. Shares trade at 13 times S&P's 2005 earnings per share estimate, toward the low end of its historical

price-earnings range. S&P is raising the target price to $17, from $11, due to an improved earnings outlook.

Nokia (NOK): Reiterates 5 STARS (strong buy)

Analyst: Ari Bensinger

The mobile-phone maker posted third-quarter earnings per share of 18 euro cents ($0.21), vs. 19 euro cents, in line with S&P's estimate. Handset unit volume grew 23%, with its global handset market share increasing to an industry-leading 39%, more than the nearest three competitors combined. Handset operating margins were 22%, well above the 9% margins posted by closest rival Motorola. The networks division reached breakeven a quarter earlier than S&P's expectations. S&P expects handset sales to rise 20% for the important fourth-quarter holiday season, from the third quarter. At 18 times S&P's 2004 earnings per share estimate of 95 cents, well below the peer average, S&P would buy Nokia.

Altria (MO): Maintains 4 STARS (accumulate)

Analyst: Anishka Clarke

The tobacco and food manufacturer posted operating earnings per share of $1.23, vs. $1.26. The results were hurt by lower U.S. volumes and higher promotional spending. Sales rose 5%, reflecting currency gains. The Philip Morris USA cigarette unit had a sequential share gain, driven by Marlboro and Parliament. International gained share as well and its volume rose 0.8%. S&P is keeping the $4.64 2003 earnings per share estimate, despite lowering the fourth-quarter estimate by 5 cents, to $1.13, on higher anticipated excise taxes and promotional spending. S&P's 12-month target price of $51 reflects a p-e of 10, based on S&P's 2004 earnings per share estimate of $4.91. S&P finds Altria shares attractive, given the potential upside and a 6% dividend yield.

Time Warner (TWX): Reiterates 4 STARS (accumulate)

Analyst: Tuna Amobi

Time Warner's stock is up modestly amid a retreat in media and entertainment stocks, as the company dropped the AOL moniker and reverted to the TWX ticker, following a previously announced name change. S&P reiterates that, while the change does not define its outlook for Time Warner, it could open a new chapter in investor perception, as management seeks to move past recent woes at the America Online division and create a renewed identity for the significantly larger traditional media businesses. S&P's 12-month target price is $19, based on a discounted high-risk cash flow model.

Nextel Communications (NXTL): Reiterates 5 STARS (strong buy)

Analyst: Kenneth Leon

Nextel, the nation's No. 5 mobile-phone carrier, posted third-quarter earnings per share of 46 cents, vs. 55 cents, before special items -- 14 cents higher than S&P's estimate and the Street's. Net subscriber adds reached a record 646,000 and average monthly revenue per user rose $2, to $71, with lower customer churn as EBITDA service margins widened from the second quarter. Nextel shares have been solid performers in 2003 and S&P sees strong earnings ahead. S&P is raising the 2003 earnings per share estimate to $1.35, from $1.16, and the 2004 estimate to $1.82 from $1.78. With Nextel shares trading at 12 times S&P's 2004 earnings per share estimate, below peers and the market, S&P recommends buy.

Caterpillar (CAT): Maintains 3 STARS (hold)

Analyst: James Sanders

Dow component Caterpillar posted third-quarter results of 73 cents, vs. 61 cents, 3 cents better than S&P's estimate, mainly due to the exclusion of a one-time charge related to an early debt retirement. Near term, S&P believe that profits will likely be impacted by higher post-retirement costs. However, longer term, S&P think the agricultural-equipment maker should benefit from both continued growth in Asia and the rollout of its ACERT engine. S&P is lowering S&P's 2003 earnings per share estimate to $3.00, from $3.02, and is raising the 2004 estimate to $4.37, from $4.25. S&P is also raising the 12-month target price to $69, from $68, based on S&P's higher 2004 earnings per share estimate.

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

Analyst: Amrit Tewary

Maytag posted third-quarter operating earnings per share of 56 cents, vs. 71 cents, before 11 cents in restructuring charges -- 3 cents below S&P's estimate. Despite some strength in major appliances, floor care segment trends were worse than S&P expected. Maytag sees earnings per share for the fourth quarter of 51 cents to 56 cents, before 11 cents of charges, and sees $2.15 to $2.20 for full 2003, before 53 cents of charges. S&P is cutting the earnings per share estimate for the fourth quarter to 53 cents, from 59 cents, and is trimming the full 2003 estimate to $2.17, from $2.26. Also S&P is cutting the 2004 estimate to $2.33, from $2.52. The new 12-month target price of $28, down from $30, assumes a p-e of 12, based on S&P's revised 2004 earnings per share estimate.

Exxon Mobil (XOM): Maintains 5 STARS (strong buy)

Analyst: Tina Vital

Exxon Mobil agreed to invest about $12 billion into a venture (30% owned by Exxon) with Qatar Petroleum to supply liquid natural gas to the U.S. The agreement includes the development of two new liquid natural gas trains at Ras Laffan Liquefied Natural Gas Co. Fed from Qatar's North Field, production is expected to reach 15.6 million tons of liquid natural gas per year, or two billion cubic feet per day, for 25 years. S&P likes the deal, which strives to meet growing U.S. demand for natural gas and strengthens Exxon's position in Qatar, which contains the world's third largest natural gas reserves.

UnitedHealth (UNH): Maintains 4 STARS (accumulate)

Analyst: Phillip Seligman

The health-benefits company posted third-quarter earnings per share of 77 cents, vs. 56 cents, which is 4 cents above S&P's estimate. Healthcare services revenue rose 16% on price hikes, new customers, and an acquisition. Segment operating earnings rose 38%. The medical loss ratio fell 170 basis points, mainly on moderated medical cost trends. S&P sees UnitedHealth's operating margin rising on operational improvements and growth of high-margin services. Cash flow looks healthy. The company sees 2003 earnings per share up 37%, to $2.91, and sees 2004's earnings up 21% to 22%. S&P is raising the price target to $61, from $59, which is 17 times S&P's 2004 estimate of $3.55, in line with that of the S&P 500.


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