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Upgrading Hilton Hotels to Accumulate

Hilton Hotels (HLT): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Thomas Graves

The hotel chain posted Q2 EPS of $0.23 vs. $0.23, above estimates. Results were helped by cost containment, the strength of its timeshare business and lower interest expense. S&P is upping the 2001 EPS estimate to $0.71 from $0.67, and raising the 2002 estimate to $0.83 from $0.78, including a prospective benefit from a change in goodwill accounting. S&P is pleased by the rollout of the guest loyalty program at acquired chains, and also likes Hilton's consolidated reservation system. S&P expect capital spending to drop in 2002, and will look for Hilton to be an increasingly attractive free-cash-flow story. The stock is trading at 14 times S&P's estimated 2002 free cash flow.

Abgenix (ABGX): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Frank DiLorenzo

Abgenix posted Q2 revenues of $8.4 million, which were $1

million ahead of S&P's view. The loss per share of $0.17 was a penny better than S&P's forecast. Abgenix has made progress on several fronts: development of its pipeline (with partner Imunex, ABX-EGF entered Phase II trials to treat kidney

cancer in Q2), licensing its technology, securing added

drug targets, and partners making development progress.

Reflecting higher R&D, S&P see a $0.71 loss per share in

2001, a $1.11 loss in 2002, and a $1.19 loss in 2003. S&P feels Abgenix is attractive on its pipeline and partnerships, as well as future royalties.

Xerox (XRX): Maintains 3 STARS (hold)

Analyst: James Corridore

Xerox posted a Q2 per-share loss of $0.10 from operations, vs. a year-ago's $0.27 EPS, in line with prior guidance. Revenues fell 13%, and margins narrowed sharply. Xerox did a nice job cutting costs and improving liquidity. The company has achieved 75% of its $1 billion cost reduction program, has cut 8,600 jobs, and had $2.2 billion cash on hand at end of Q2, all solid progress. Amid continued weak industry conditions, Xerox expects a loss in Q3, and a return to profitability in Q4. Given the extraordinary challenges Xerox still faces, S&P advises caution. However, with operational and financial progress, shares are okay to hold.

AOL Time Warner (AOL): Maintains 5 STARS (buy)

Analyst: Scott Kessler

A Wall Street Journal story indicates AOL and AT&T are in preliminary talks, whereby AOL would effectively purchase AT&T's cable TV holdings. The talks stemmed from Comcast's hostile bid for AT&T's broadband unit. AOL and AT&T were already negotiating AOL's repurchase of the 25.5% of Time Warner Entertainment (with stakes in Warner Bros. and HBO) that AT&T owns. Although a deal would make some sense for AOL, the prospect of a bidding war with Comcast and intense regulatory scrutiny make an agreement unlikely. S&P sees AOL as more interested in buying Cablevision.

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