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Downgrading AirTran to Hold


AirTran Holdings (AAI): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: James Corridore

The discount airline expects EPS of $0.02-$0.06, vs.the $0.14 Street mean estimate. Airtran says load factors and yields fell on economic weakness and increased price competition, but were partly offset by lower-than-budgeted fuel prices. With increased

capacity and lower break-even sales level relative to larger airlines, AirTran is well positioned for growth in a normal

environment. However, given the harsh business conditions, S&P would await signs of pickup in business travel and stronger economic data before adding to positions.

Krispy Kreme (KKD): Maintains 1 STAR (sell)

Analyst: Kenneth Shea

The doughnut chain posted July-quarter EPS of $0.10 vs. $0.06, beating S&P's estimate on 13% systemwide comparable-store sales growth -- stronger than expected -- and controlled costs. The company is executing well with its aggressive U.S. expansion, and raised its EPS annual growth guidance over the next three years to 30%-35% from 25%. But S&P is concerned by slowing comparable-store sales -- 11.9% vs. a year-ago's 24.4%, in owned stores -- where most of the profit lies over the next few years. Current hyper-growth will keep momentum players happy, but S&P sees slowing revenue from a larger store base leading to share-price compression ahead. Krispy Kreme is overvalued at 87 times the fiscal 2002 (Jan.) estimate of $0.39.

Synopsys (SNPS): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Thomas Smith

The chip equipment maker reported Q3 fiscal 2001 (Oct.) EPS of $0.28 (before goodwill; GAAP basis $0.22), versus $0.65 (GAAP was $0.59), a penny below the Street's estimates. The company encountered revenue softness in the services area. Chip companies are stingy on outlays for anything, even design software, during this industry downturn. Weaker revenue outlook prompted the downgrade. Share buybacks are ongoing and the improving tax rate is helping conditions. S&P is lowering the fiscal 2001 EPS estimate to $1.09, from $1.12, and is cutting the fiscal 2002 estimate to $2.20, from $2.30. S&P views shares as fairly valued at 22 times S&P's $2.37 calendar 2002 estimate, with 20% long-term growth potential.


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