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Still Accumulate RSA Security


RSA Security (RSAS): Maintains 4 STARS (accumulate)

Analyst: Jonathan Rudy

The computer security company agreed to acquire privately held

Securant Technologies for $136.5 million in cash. The transaction is expected to strengthen RSA's presence in the authentication market. Research group IDC forecasts this market growing 70% annually over the next four years. S&P is maintaining the 2001 operating EPS estimate at $0.56 but is raising the 2002 operating EPS estimate to $0.74 from $0.68. Given RSA's leadership, attractive growth markets and strong cash generation, S&P would still accumulate RSA at 34 times the 2002 EPS estimate, and 3.5 times the sales multiple.

HealthSouth (HRC): Maintains 5 STARS (buy)

Analyst: Robert Gold

The health-care company posted Q2 operating EPS a penny above S&P's estimate, at $0.21 vs. $0.17 on 2% more shares. Most key operating metrics are in line with S&P's estimates, with upside surprise on EBITDA front. Revenues rose 6%, as improved pricing joined with a nice 5.2% rise in medical-center division patient days and a 24% advance in diagnostic procedures. Tight control of unit operating costs pushed EBITDA margin (before unusual items) to 28.1% vs. 26.6%, above S&P's 27.5% estimate. Also critical was the reduction of four account receivables days. S&P is boosting the 2001 estimate by $0.02 to $0.83, and see 2002 estmates at $0.95, pending more clarity on Medicare rate settings.

Pioneer Natural Resources (PXD): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: John Kartsonas

The oil and gas explorer posted Q2 EPS of $0.29 vs. a loss of $0.04 -- $0.11 below the Street's estimates. S&P is lowering the 2001 EPS estimate to $1.78 from $2.38, and is trimming the 2002 estimate to $1.37. Total production decreased 2.8%; unit-operating costs increased 24%, and exploration costs rose 73%. Although shares are trading at only $2.70 per barrel of oil equivalent, Pioneer's high cost structure and relatively weak commodity environment, should reduce future returns on invested capital. With shares trading in range with S&P's discounted cash flow-based net asset value on proven reserves, Pioneer is fairly valued for now.


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