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Still Hold GE

General Electric (GE): Still 3 STARS (hold)

Analyst: Robert Friedman

S&P recommends holding GE despite reports that the conglomerate may split off its reinsurance unit. The analyst sees why GE would consider unloading the property-casualty reinsurance operation. After September 11, formerly non-correlated insurance risks have become highly correlated, materially boosting the risk profile of the reinsurance industry. Moreover, the increasing regulatory scrutiny of opaque businesses is also upping the risk profile of reinsurance operations. As a result, it seems GE would like to capitalize on market exuberance for property-casualty stocks. But even if GE takes the step, S&P still projects free cash earnings growth rate at 9%.

Teradyne (TER): Upgrade to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Richard Tortoriello

Industry fundamentals continue to improve, particularly in the test and assembly markets. Revenues for semiconductor test fell 58% in 2001, vs. a 32% decline for wafer fab equipment. Over recent months, however, test and assembly revenues have jumped sharply from a low base, and we expect continued improvement. TER's broad line of advanced test equipment and significant "design in" wins position it well for an upturn. At 4.5 times trailing sales and 3.7 times book value, TER shares are in line with the broader equipment group and worth holding.

Mohawk Industries (MHK): Continue 5 STARS (buy)

Analyst: Raymond Mathis

Interest rate jitters have pressured housing related issues this week, driving MHK from its 52-week high. S&P views this as a buying opportunity. MHK revenue is driven mainly by existing home sales and consumer confidence. S&P forecasts seasonally-adjusted existing home sales through February will be reported at a 5.5 million annual pace, ahead of last year's annual record 5.25 million. And Michigan consumer sentiment jumped from 90.7 to 95.0 in March, the highest level since December 2000. Also, raw material prices remain in check.

Oracle (ORCL): Maintain 4 STARS (accumulate)

Analyst: Jonathan Rudy, Scott Kessler

February quarter EPS was $0.09, vs. $0.10, meeting S&P's forecast and its preannouncement guidance. Revenues fell 17%, but were down only 5.4% from the November quarter. As the software maker said when it preannounced on Mar. 3, the Asia-Pacific area was quite weak. Operating margin was solid at 34.9%, exceeding S&P forecast of 34.0% on strong cost cuts. The May quarter outlook is somewhat disappointing. The company now sees EPS of $0.13-$0.14 vs. our projection $0.15. S&P is putting estimates under review. But with a likely fiscal year 2002 (November) p-e around 30, ROE over 40%, and $5.6 billion in cash and securities, ORCL shares are still attractive.

Adobe Systems (ADBE): Maintain 4 STARS (accumulate)

Analyst: Scott Kessler

Excluding certain non-cash and non-operating items, February quarter EPS was $0.21 vs. $0.29, in line with S&P estimate and the company's preannouncement. Revenues dropped 19%, but rose 1.3% sequentially reflecting a 20% increase in ePaper sales (contributing 28% of total). Acrobat wins included: Bloomberg, Broadcom, Credit Suisse, Lockheed Martin and several government entities. Operating margin of 27.1% improved nicely from prior quarter's 25.7%. Guidance for the May quarter is better than expected. At 35 times S&P's upped fiscal year 2002 (November) EPS estimate of $1.06 (from $0.95), the shares are still attractive.

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