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Upgrading Norfolk Southern to Hold

Norfolk Southern (NSC): Upgrades to 3

STARS (hold) from 2 STARS (avoid)

Analyst: Richard Stice

The railroad corporation posted Q1 EPS (continuing operations) of $0.16 vs. $0.04 before a charge; $0.01 above S&P's estimate. Revenues were aided by increased demand for coal and domestic container traffic, more than offsetting fewer merchandise shipments. Expenses were well controlled, and headcount was reduced 4% in Q1. April carload volumes were running below 2000 levels for all products. S&P is maintaining its 2001 EPS estimate of $1.10. Although the slowing economy still is having an impact, S&P believes the second half pick-up in industrial production, along with increasing coal demand, will benefit shares.

Disney (DIS): Maintains 4 STARS (accumulate)

Analyst: Thomas Graves

Before charges and the cumulative effect of accounting changes, Disney posted EPS of $0.17 in the March quarter, vs. $0.08 one year earlier, above Street estimates. On a pro forma basis, EPS were $0.19 vs. $0.14. Studio entertainment was a particular bright spot, with profit more than tripling. Expectation of further strength there helps to offset concerns about prospective weakness in its theme park and TV advertising segments. Excluding some one-time items, S&P is adjusting its fiscal 2001 (Sep.) EPS estimate to $0.76 from $0.75 and its forecast for fiscal 2002 to $0.92 from $0.90. If non-cash goodwill were excluded, EPS would be more like $1.10 for fiscal 2001 and $1.20 for fiscal 2002. (AMZN): Maintains 3 STARS (hold)

Analyst: Scott Kessler

The online retailer posted a pro forma Q1 loss per share of $0.21 vs. $0.35, better than guidance in its positive preannouncement. Revenues were up 22% on 76% growth in international operations (13% of revenues) and 56% in its electronics, tools and kitchen segment (13%). Gross margin widened to a better-than-expected 26.1%, from 22.3%, on improved supply-chain and inventory management. Operating performance benefitted from greater efficiencies and leverage. S&P expects Q2 to be similar to Q1, and sees full-year 2001 revenue growth of 25%. Despite Amazon's good results and potential, its losses and huge debt warrant a hold recommendation.

Flextronics (FLEX): Upgraded to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Jim Corridore

The company posted EPS of $0.22 in the March quarter vs. $0.17, $0.02 below the Wall Street target. However, Flextronics was one of the few electronic manufacturing firms not to cut guidance. Revenue was up a strong 40%, and margins were near their targeted range. The company sees flat June quarter sequential revenues and EPS, which equates to about a 36% revenue rise from a year earlier and 22% EPS growth. The business environment remains tough, but Flextronics should weather the storm well, with its lowest-cost manufacturing and streamlined operations. At 25 times S&P's $1.15 fiscal 2002 (Mar.) EPS target, Flextronics is attractively valued below the 30%+ long term EPS growth forecast.

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