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Continue Hold on Microsoft

Microsoft Corp. (MSFT):

Continue 3 STARS (hold)

Analyst: Jonathan Rudy

The U.S. Supreme Court denied the software giant's request to overturn an earlier ruling that company had violated U.S. antitrust laws. Rudy says the decision was widely anticipated as Microsoft's appeal appeared to be a stalling tactic while the company approaches official Oct. 25 release of Windows XP. The settlement talks remain key, since the could result in potential restrictions impacting MSFT's rollout of Windows XP. With the issue still unresolved, says Rudy, S&P would not add to positions at this time.

Commerce One (CMRC):

Reiterate 3 STARS (hold)

Analyst: Scott Kessler

The slow economy and business interruption from the September 11 attacks have resulted in about a 50% shortfall in third quarter license sales, notes Kessler, which he estimates will be 23% of revenues. But services and network revenues seem to be holding up well, and Kessler is actually lowering third quarter loss estimates by $0.01, to $0.25, based on aggressive cost cuts. However, S&P's forecast of recession caused him to cut the 2002 revenue growth forecast for Commerce One from 45%, to 23%. Also, Kessler does not see profits for the company until 2003.

Pepsi Bottling Group (PBG): Maintaining 4 STARS (accumulate)

Analyst: Richard Joy

The company reported Q3 EPS of $0.96 vs. $0.82, $0.01 better than expected. Worldwide physical case volume gained 3%, with average pricing also up 3%. EBITDA was up 10% on volume and pricing gains.

Joy sees momentum building on strong new product activity, and expects strong cash flow will fund acquisitions and share repurchases. He's maintaining his 2001 EPS estimate at $1.87, and sees $2.21 for 2002. He expects 2002 EBITDA to rise 10% to 11%. Plus, he thinks the shares are attractive at an enterprise value of 7.5 times the S&P 2002 EBITDA estimate, given the company's superior execution and strong growth across its beverage portfolio.

Shaw Group (SGR): Keeping 4 STARS (accumulate):

Analyst: Stewart Scharf

The provider of engineering and construction services reported Q4 fiscal 2001 (Aug.) EPS of $0.45 vs. $0.30 one year earlier, in line with analysts' expectations. The company also recorded a strong $4.5 billion backlog driven by the domestic power market, with 82% of sales coming from the U.S. However, Scharf expects more projects overseas as the company expands capacity. The analyst sees at least a 17% gain in gross margins in fiscal year 2002 on strong engineering margins.

Scharf noted some World Trade Center-related work is possible, but positive prospects are based mostly on natural gas projects, coal and nuclear plants. With the shares trading at 16 times S&P's fiscal 2002 EPS estimate of $2.15, and at least 20% of projected EPS growth, the analyst suggests adding to positions.

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