AirTran Holdings (AAI): Upgrades to 4 STARS (accumulate) from 2 STARS (avoid)
Analyst: James Corridore
The airline posted Q3 operatng EPS of $0.02 vs. $0.14, better than expected. Revenues fell 7%, and expenses rose 3% due largely to costs to add new 717 aircraft to its fleet. AirTran reports load factors are recovering and financial position are stable with $135 million in cash. The airline is nearing cash break-even, and its break-even load factor level is sharply below peers. The company did a great job restructuring contracts with unions. S&P is more confident AirTran can survive the downturn. With low costs and traffic levels improving, and the stock 71% off its high, shares are attractive.
Comcast Corp. (CMCSK): Reiterates 4 STARS (accumulate)
Analyst: Howard Choe
The cable television company posted Q3 results in line with revenues up 20% and operating cash flow (OCF) up 17%. Digital cable and high-speed data subscribers growth rose 65% and 116%, respectively. Despite interruptions of September 11 and the aftermath, QVC performed well in the quarter with revenues and cash flow up 9% and 10%, respectively. Content business now is the fastest growing unit with revenues and cash flow up 18% and 43%, respectively. Overall operating margin still is trending up. The company is weathering the slow economy well. Comcast is attractive at 12.7 times the enterprise value to EBITDA.
PacifiCare (PHSY): Maintains 3 STARS (hold)
Analyst: Phillip Seligman
The health-care concern posted Q3 EPS $0.52 vs. $0.04, excluding one-time items, above S&P's $0.48 estimate and the Street's $0.34 estimate. Revenue rose 2.4%. Commercial premium revenue is off 3.6% on 15% fewer members. Medicare's revenue is up 6.6% on 3.4% fewer members. Commercial medical loss ratio (MLR) is 89.5% vs. 87.9%, and Medicare's ratio is 89.0% vs. 91.0%. S&P is pleased the company is exiting unprofitable markets but sees limited success in lowering commercial MLR, despite new products and price hikes, with the company's transition to more risk-based provider contracts. S&P is maintaining the 2001 EPS estimate $1.70, and keeping 2002's estimate of $2.00 before a goodwill accounting change. However, visibility is limited.