Gillette (G): Upgrade to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Howard Choe
S&P believes the company's appointment of James M. Kilts, former CEO of Nabisco Holdings, as Chairman and CEO is long-term positive. Kilts's experience of turning Nabisco around, involving restructuring and divesting non-core assets, should prove invaluable to Gillette now. We would expect to see progressive margin expansion. The transition should be bolstered by acting CEO De Graan's decision to stay on with the company. Further enthusiasm is restrained, however, by considerable challenges still facing the company with weak battery and toiletries units and reduced pricing leverage.
Lexmark International (LX): Reiterate 4 STARS (accumulate)
Analyst: Megan Graham-Hackett
The company posted Q4 operating EPS of $0.64 vs. $0.73. Core printer/supplies business was up 13%. Gross margin bit below our estimates at 30.8% vs. 34.4%. Results were hurt by a mix due to strong inkjet printer sales and higher airfreight costs and were offset by tight R&D and SG&A expense control. Lexmark sees Q1 revenues up 7%-12% year over year as currency is still an issue, which is in line with S&P's estimates and EPS of $0.55 to $0.61. The company still sees 2001 EPS up 15%-20%. S&P raised its 2001 EPS estimate $0.07 to $2.70. Trading at 19 times 2001 EPS, the stock is attractive.
Dell Computer (DELL): Reiterate 3 STARS (hold)
Analyst: Megan Graham-Hackett
The company sees Q4 EPS $0.18-$0.19, vs. our estimate $0.24 and Dell's prior guidance $0.25-$0.27. But revenues are seen at $8.5 to $8.6 billion, which is in line with our $8.49 billion estimate. DELL used an aggressive pricing actions to take market share in PC market. Gross margin was below 20% expected, vs. our 20.9% estimate. The company says pricing produced strong demand across products, geographies. Importantly, Dell says server units grew +50% from the year ago. We are trimming our fiscal 2002 (January) estimate by $0.06 to $0.98 on weaker gross margin from pricing pressure. At 26 times earnings, it's okay to hold DELL.
Teco Energy (TE): Reiterate 3 STARS (hold)
Analyst: Justin McCann
The utility-holding company posted Q4 EPS $0.46 vs. $0.36, $0.02 above S&P's estimates.
Both Q4 and 2000's EPS of $1.97 vs. $1.68 benefited from sharp improvement in non-regulated power services and coal units. Full year also aided about $0.06 from 3.7% fewer shares. S&P raised its 2001 EPS estimate by $0.05 to $2.15. Power services should benefit from a full year of Teco's new generating projects in Hardee and San Jose, Calif., while earnings from its coal unit should gain from new synthetic fuel plants. The company's Tampa Electric unit should also benefit from 3% customer growth. Still, Teco is fairly valued at 13 times S&P's 2001 estimate.
Federal-Mogul (FMO): Reiterate 4 STARS (accumulate)
Analyst: Efraim Levy
The leading auto parts manufacturer pre-announced a wider than expected Q4 loss. Federal-Mogul now sees about $1.00 per share loss in Q4 as the reduction of end of quarter sales incentives lowered replacement-parts demand more than the company expected. Federal-Mogul's earlier forecast of about $0.50 per share loss reflected lower new vehicle production. The latest forecast is before possible extraordinary charges. S&P sees a loss for 2001 but even so, forecasts a favorable risk-reward in Federal-Mogul for aggressive investors. The shares are not recommended for conservative accounts.