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AT&T Raised to Hold

AT&T(T): Upgrade to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Craig Shere

The long-distance and cable TV giant reported Q4 EPS of $0.26 vs. $0.59, in line with recently lowered Street estimates. Business, consumer and wireless services saw a combined operating EBITDA contraction of only 7.5%. In Q4, total broadband gains in customers were 60% for telephony, 29% for high-speed data and 14% for digital video. AT&T will spin off the rest of its wireless business in mid-2001, after its holder swap offer, and will issue an IPO for its broadband business in the fall. The company will also spin out a consumer tracking stock in Q3 2001. Despite a poor combined earnings outlook, depressed shares are below the sum of its parts.

Disney (DIS): Maintain 3 STAR (hold)

Analyst: Thomas Graves

News that Disney will discontinue its Internet portal is encouraging, and sends a new message that the entertainment company is willing to cut costs. S&P expects Disney will still have a major Internet presence via specialty branded sites. Excluding Internet-related and direct-marketing operations, we are trimming our fiscal 2001 (Sept.) EPS estimate to $1.00, from $1.03, or $1.21 if amortization of intangibles is excluded. Near term, S&P expects concerns about the California economy and the tough television-advertising environment to offset the support that Disney's stock will get from the prospect of growing free-cash flow and from interest among small investors.

Gateway (GTW): Reiterate 3 STAR (hold)

Analyst: Megan Graham-Hackett

The personal-computer maker announced that chairman and founder Ted Waitt will retake the CEO spot as Jeff Weitzen retires. The news is not entirely unexpected, given Gateway's recent string of EPS preannouncements during the U.S. PC slowdown. According to market research firms, Gateway's Q4 PC unit shipments fell 7% as the company lost about 60 basis points worth of market share. Waitt has shown the ability to focus Gateway well on customer value, and he could help the company's efforts to better tap the small business market. S&P will update its report after a conference call with Gateway on Wednesday morning.

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