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Hold 3Com on Job Cut News

3Com Corp. COMS

: Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

Monday's Wall Street Journal reported "substantial" layoffs will be announced by the company. The cuts follow earlier restructuring moves and layoffs of 1,200 announced earlier this year. The latest move is largely expected in light of the networking industry's woes, as 3Com is largely dependent upon carrier spending, which has dropped sharply in 2001. The company's earlier moves were expected to save $500 million. The new cuts bring the company closer to its goal of saving $1 billion annually. S&P won't change the estimate until definitive details are available. With $5.45 in cash and more than $1 billion in assets to monetize, 3Com is worth holding.

Guidant Corp. GDT

: Maintains 4 STARS (accumulate)

Analyst: Robert Gold

Shares are down recently on the release of clinical data for Contak congestive heart failure device, after a comment by the FDA that a Guidant press release promoted the unapproved device as safe and effective. S&P views the harsh reaction to the FDA's comments as an extension of concerns about unconvincing trial data, which showed Contak slowed heart failure progression in only 21% of patients. S&P expects a full FDA review in Q3, but the stock valuation now reflects a very bearish scenario for both Contak and the coronary stent franchise. At four times sales and 17 times S&P's 2002 EPS estimate of $2.00, Guidant is far below historic norms.

FedEx Corp. FDX

: Reiterates 4 STARS (accumulate)

Analyst: Richard Stice

The global transportation company lowered its earnings guidance. An industrial production slowdown is negatively impacting express package volume. The decrease is being somewhat offset by higher volumes in international priority and ground segments. FedEx expects softness to continue into the August quarter. S&P is lowering its fiscal 2001 (May) estimate by $0.20 to $2.20, and is cutting the fiscal 2002 estimate by $0.30 to $2.55. Despite the slowdown, S&P believes the company will begin to benefit from a lower interest-rate environment and a $7 billion deal with the U.S. Postal Service in fiscal 2002. S&P sees FedEx as undervalued at less than 16 times the fiscal 2002 forecast.

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