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Downgrading IMS to Hold

IMS Health (RX)

Downgrading to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Todd Rosenbluth

S&P sees recent acquisitions in biotech sector and slowdown in pharmaceutical earnings putting intermediate-term pressure on its core market research revenues. Fewer customers and trimmed budgets will curtail future demand. Though S&P sees continued benefits in software development, it is reducing its 2002 revenue estimate to $1.47B. Further cost cutting initiatives should keep margins from narrowing. S&P is keeping 2001 estimate at $0.99, but lowering 2002 by $0.03 to $1.12. At 18 times 2002 estimate and lack of visibility, S&P recommends staying on the sidelines.

Conexant Systems (CNXT)

Upgrading to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Thomas Smith

S&P sees improving revenue outlook and progress toward spinoffs and December quarter revenues up 10% vs. September quarter, compared to 5% to 7% rise foreseen Nov. 19. Wireless segment on 35% pace in December quarter, vs. 25% prior view. The company has plans to split into three independent companies focusing on mobile communications, broadband access, Internet infrastructure. It announces the merger of its wireless business with Alpha Industries to create pure play in RF chips. Completion seen in the second quarter of 2002. S&P sees a chance for better multiples on the new company, suggesting moderate outperformance.

Dynegy Inc.(DYN)

Maintain 4 STARS (accumulate)

Analyst: Craig Shere

The company's debt was downgraded Friday to Baa3 by Moody's, two notches below S&P and Fitch. Dyngey unveiled $1.25 billion in planned asset sales and equity issuance in 2002 and at least $200 million reduction in planned 2002 capex. Interest expense to rise as Dyngey replaces commercial paper obligations with existing bank credit lines. S&P is reducing 2002 estimate to $2.30, from $2.55, on weak energy prices, dilution from equity issuance, and costs of delays of Northern Gas acquisition. At 10 times 2002 EPS, 15% plus long-term growth rate, Dyngey's P/E to growth ratio is still under half of S&P 500.

USA Networks (USAI)

Maintain 4 STARS (accumulate)

Analyst: Mark Basham

An implied $12.4 billion value for its entertainment assets tops high end of S&P's expected $9.6 to $10.8 billion price tag. USA will retire Vivendi Universal's 378 million shares, receive $1.6 billion in cash, 5.4% stake in common stock and $750 million preferred interest in the new entertainment joint venture with Vivendi. USA will be renamed USA Interactive, gain independence from Vivendi, who agrees not to compete with new joint venture's film and television businesses.

Dean Foods (DF)

Maintains 3 STARS (hold)

Analyst: Joseph Agnese

The company posts $0.80 compared with $0.84 in its November quarter EPS before merger related costs, which is $0.14 ahead of the Street's expecations. Net sales rose 4.3%. Despite the rise in ice cream and fluid milk sales, its dairy group division continues to suffer from high raw milk and butterfat costs. Operational improvements in national refrigerated product group boosted results. The expected acquisition by Suiza Foods (SZA) in coming weeks is currently valued at $46.77 per share. Dean remains worthwhile holding given benefits, good prospects likely to be realized by joint company run mainly by respected Suiza management.

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