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Still Hold Xerox


Xerox (XRX): Keeping 3 STARS (hold)

Analysts: Richard Stice, Ari Bensinger

The company received $340 million in financing from GE Capital, secured by portions of lease receivables. This follows $835 million received from GE last month, with additional financing expected in February 2002. The funding raises Xerox's cash holdings to approximately $3.9 bil. The company repaid $1.1 billion of debt that matured this quarter. Its long-term goal is to remove up to $10 billion in financing-related debt from its balance sheet. Despite the company's improving financial health, S&P remains concerned about stagnant product demand and competitive pressures, and would hold the shares.

Micron Technology (MU): Keeping 3 STARS (hold)

Analysts: Thomas Smith, Richard Tortoriello

Micron Technology is reportedly in negotiations with South Korean chip giant Hynix. According to wire service reports, a South Korean newspaper ran comments from Hynix's CEO that the company is in negotiations to withdraw from the memory (DRAM) business by selling it to Micron. Such a purchase would vault Micron past the DRAM leader Samsung Electronics in size. However, substantial progress needs to be made before DRAM pricing reaches breakeven levels. S&P recently increased its fiscal 2002 (August) loss estimate to $1.00 per share, from $0.85. Given volatile DRAM pricing, and the prospect of a few more quarters of losses, S&P is still neutral on the shares.

NBTY Inc. (NBTY): Initiating coverage with 3 STARS (hold)

Analyst: Howard Choe

NBTY is a major global manufacturer and retailer of value priced nutritional supplements. NBTY is a consolidator, so sales are partly driven by acquisitions but organic sales are solid. Retail sales have stifled by slow store traffic; fewer store openings are planned for fiscal 2002 (September). S&P expects continued pressure on gross margins due to competition but SG&A expenses should be well contained. S&P views the shares as fairly valued, trading at 18 times the $0.67 EPS estimate for fiscal 2002, a premium to its peers but a discount to the broader market.


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