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Downgrading Macromedia to Sell

Macromedia (MACR): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Scott Kessler

Although revenues are seen a bit better than S&P's pessimistic $83 million projection, the expected per-share loss of $0.15-$0.20 was considerably worse than estimates. The shortfall reflects weak demand for professional Web development software, which was widely anticipated. However, a pithy release put out by Macromedia suggests its expense structure is bloated and that the Allaire acquisition increasingly is becoming a negative. Despite the decline of late, the stock still is expensive at 49 times the recently slashed fiscal 2002 (March) estimate of $0.33. S&P would sell Macromedia and buy Adobe.

General Electric (GE) and Honeywell (HON): Maintain 3 STARS (hold)

Regardless of whether the European Commission accepts GE's 11th-hour offer of selling its 20% stake in GE Capital's big aircraft leasing/financing unit, S&P still advises value investors not to buy either GE or Honeywell at current prices. Both companies are trading at the highest end of fair value ranges. Stand-alone cash flow models value Honeywell at $35-40 per share and GE at per $43-$54 a share. S&P believes any additional purchases of Honeywll stock based on the merger outcome leaves buyer with no margin of safety.

IBP Inc. (IBP) and Tyson Foods (TSN): Reiterates 3 STARS (hold)

Analyst: Phillip Seligman

Tyson will acquire all IBP shares on the original terms of their deal: $30 cash for 50.1% of IBP's shares, with the rest converting to Tyson shares at a maximum exchange ratio of 2.381, and a minimum of 1.948 Tyson shares if Tyson's average stock price for a defined time period is outside the $12.60-$15.40 collar. Based on the recent Tyson trading price, IBP shares are currently worth around $25.84. S&P would keep both stocks. Tyson shares already reflect the discounted value of the combined company, and could only rise assuming Tyson's management improves the IBP operations. IBP holders get $30 and/or Tyson shares at a discount.

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