Palm Inc. (PALM): Reiterates 3 STARS (hold)
Analyst: Megan Graham-Hackett
The company announced the creation of a separate subsidiary for its software platform group, which comprises the Palm operating system. The move is not surprising, as the company's CEO has hinted at this for the past few months. The Palm OS has long been considered the most valuable portion of PALM, with 170,000 developers writing programs based on the operating system. The Palm OS is included in 76%-88% of all personal digital assistants (PDAs). While the company denies the move is part of preparing for an eventual spin-off of the unit, S&P believes the spin-off is likely, given Palm's poor execution in its hardware business and pressure to unlock shareholder value.
Heller Financial (HF): Reiterates 4 STARS (accumulate)
Analyst: Mark Basham
GE Capital agreed to acquire the company for $5.3 billion in cash. GE Capital's offering of $53.75 per share in cash represents a 50% premium over Friday's closing price. The price is about 2.3 times book value, which was too good for Heller parent Fuji Bank to pass up. Because of Heller's factoring operations in Europe, S&P expects GE will have to again deal with European regulators. But since Heller's factoring operations there are not that large, S&P expects little opposition to this deal.
Schlumberger Ltd. (SLB): Reiterates 3 STARS (hold)
Analyst: Tina Vital
The company posted Q2 EPS of $0.32 (before $0.48 special charges) vs. $0.31 (before $0.04 special charges), $0.07 above the Wall Street consensus estimate. Operating income was up 119%, reflecting a 46% revenue increase in Oilfield Services (M-I rig count was up 27%) on robust drilling activity, higher pricing, and new technology. The outlook is favorable on growing international opportunities. S&P sees the slowdown in U.S. natural gas drilling as temporary. S&P sees 2001 EPS at $1.16, rising to $2.58 in 2002. With earnings limited by development costs related to the pricey Sema acquisition (completed Apr. 6), the shares are trading at a premium 22 times S&P's 2002 EPS estimate and are fairly valued.