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Markets & Finance

Still Hold General Motors

General Motors (GM): Maintains 3 STARS (hold)

Analyst: Efraim Levy

In contrast to Ford's earnings warning last week, General Motors expects to exceed the Street's $0.81 mean forecast of Q3 EPS by $0.02. GM cited an improved mixed, aided by the availability of new light-truck products and greater-than-projected employment cuts, which were partly offset by higher incentives and the impact of a higher dollar. GM is maintaining its production schedule forecast for rest of 2001. S&P is raising the 2001 EPS forecast by $0.05, to $4.25, but is maintaining the $4.20 forecast for 2002, as the competitive environment continues to worsen.

Capstone Turbine (CPST): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Craig Shere

Captsone has had a sharp slide after initially rising on Q2 results announced August 8. With hiring activity likely to be sluggish for several quarters, S&P thinks most sell-side estimates based on management guidance are too high. S&P is trimming the already-low estimates further, and is cutting the 2001 EPS estimate of $1.28 to $1.20 and trimming 2002's $1.65 estimate to $1.56. The Street consensus is $1.40 for 2001 and $1.93 for 2002. S&P thinks likely estimate cuts and potential downgrades by others will pressure the stock further. Those without holdings, avoid. S&P also think longs should lighten up on positions.

Intuit (INTU): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Scott Kessler

Without acquisition-related costs and one-time items, Intuit's July-quarter per-share loss of $0.08 vs. $0.04 was $0.02 better than consensus. Amid a tougher economic climate and stagnant PC-unit growth, the 18% revenue increase is strong. S&P forecasts fiscal 2001 (July) growth at more than 19.3%, accelerating sequentially, reflecting demand for tax, payroll and loan offerings. Improved business practices should also result in operating margins widening 150 basis points to 19.1%. Favorable visibility, below-market price-to-earnings growth of 1.3, and the discount (based on the discounted cash flow intrinsic value of 24%) makes Intuit attractive.

Westvaco (W):

Reiterates 5 STARS (buy)

Analyst: Michael Jaffe

The company posted July-quarter EPS of $0.19 vs. $0.69, both before one-time items, in line with estimates. As expected, the weak U.S. economy and strong U.S. dollar hurt printing paper and paperboard businesses, but Westvaco is seeing strength in new markets -- chiefly in entertainment packaging. S&P also still sees $1.00 EPS in fiscal 2001 (Oct.), and $1.70 in fiscal 2002. The economy still looks dismal, but the Fed's non-stop easings should finally show some positive effects in coming months. Westvaco's recent actions to focus on packaging should pay off nicely at that time. At 15 times S&P's fiscal 2002 forecast, shares are an excellent way to take part in a forecasted economic revival.

Roadway Corp. (ROAD): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: James Corridore

Roadway will acquire Arnold Industries for about $475 million in cash, adding next-day delivery capabilities, which is the fastest-growing sector in trucking. The price net $105 million in proceeds from the agreed-upon sale of Arnold's logistics business to prior management. The deal is seen immediately accretive to earnings. Roadway is a profitable less-than-truckload carrier with low price-to-sales and price-to-earnings ratios relative to peers. The stock hasn't participated in the price appreciation that the trucking group has seen in 2001, and S&P says shares are attractively valued.

AOL Time Warner (AOL): Reiterates 4 STARS (accumulate)

Analyst: Scott Kessler

As has been reported in the press for weeks, AOL now is laying off significant number of employees -- 1,200 from AOL unit and 500 at its Sun-Netscape Alliance. America Online is creating a new Interactive Services Group, Web Properties Group and Vertical Markets Group. Also, AOL is increasing its focus on interactive marketing and broadband initiatives. S&P sees these efforts leading to increased growth and improved efficiencies. S&P also sees these moves as favorable, as AOL is streamlining organization and removing uncertainty as to rumored workforce reductions.

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