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Downgrading Calpine to Accumulate

Calpine Corp. (CPN): Downgrading to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Craig Shere

Shares are down 15% from last night's close as Moody's placed the company on credit watch negative (for a possible downgrade from a rating of Baa3). This contrasts with the steadily increasing credit ratings of the last two years. Despite upgrades elsewhere in October, S&P maintained BB+, and recently reaffirmed comfort with this level, suggesting that credit could improve with slowed plant construction. Despite Calpine's value and fundamentals, S&P worries that Enron's collapse will rule the market's view of the stock. News could expose Calpine to near-term erratic trading, downside risk.

Gillette (G):

Maintain 3 STARS (hold)

Analyst: Howard Choe

The company plans to take a Q4 charge for impaired assets. Gillette will take a $170 million pretax charge ($130 million aftertax or $0.12 a share) in Q4 to cover write-down of goodwill, other intangibles and related long-lived assets of battery brands that are not sold under the Duracell brand in international markets. The outlook for Q4 is modest due to tough comparison figures from trade loading and current destocking efforts. S&P recommends holding the stock as good housecleaning efforts offset the stock's ample valuation. S&P is maintaining 2001 and 2002 EPS estimates of $1.00 and $1.11.

Echostar (DISH):

Maintain 4 STARS (accumulate)

Analyst: Howard Choe

The company announced a strategic alliance with Vivendi Universal. In an 8-year deal, Vivendi will develop and provide Echostar with programming and interactive services and make a $1.5 billion investment in Echostar. Echostar will issue Vivendi preferred shares in return which will then convert to common shares upon consummation of the Hughes Electronics (GMH) merger. However, the deal is not contingent on merger. Vivendi will own about 10% of Echostar and less than 5% of the combined Echostar/Hughes enitty. The deal will greatly enhance Echostar's programming leverage and competitiveness.

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