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Downgrading Texas Industries

Texas Industries (TXI): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Leo Larkin

The company posted third quarter fiscal 2002 (May) EPS of $0.28 vs. a $0.55 loss on a 19% sales gain -- in line with the $0.27 consensus. The strong performance reflected solidly higher sales and profits for both the cement, aggregates and concrete unit (CAC), and steel. The company told analysts that fourth quarter CAC will lag fiscal 2001 on plant outages, and says it sees a small gain in steel sales.

S&P is cutting the fiscal 2002 estimate to $1.90 from $2.00 on that basis, and is keeping $2.30 for fiscal 2003. Long-term sales and EPS should benefit from an economic rebound but S&P would not add to holdings -- given the run-up in the stock price and the high price-earnings ratio on S&P's fiscal 2003 EPS estimate.

InFocus (INFS): Initiates coverage with 3 STARS (hold)

Analyst: Ari Bensinger

InFocus is the market leading provider of multimedia projection systems, with about a 25% share. S&P sees 2002 revenue advancing in the low single digits, as solid unit shipment growth mostly is offset by intense industry pricing pressure. With expectations for massive discounting by Japanese competitors, InFocus has the difficult task of balancing market share growth versus profitability objectives. S&P is initiating 2002 EPS at $0.87, and initiating 2003 at $1.15. S&P views InFocus as fairly valued at 21 times S&P's 2002 EPS estimate, relative to its estimated 16% long-term earnings growth rate.

HCA (HCA): Reiterates 4 STARS (accumulate)

Analyst: Phillip Seligman

An appellate court reversed fraud convictions against two former HCA executives. The court said the federal government failed to prove the executives intentionally made false statements to Medicare, as cost-reporting rules are unclear and subject to conflicting interpretations. These were the only criminal charges brought against current and former HCA employees. S&P sees the development as dissipating some of the cloud overhanging the shares, as the long-running federal investigation of the company continues to move towards its final resolution. At 18 times the 2002 EPS estimate of $2.38, S&P says shares should outperform.

Philip Morris (MO): Reiterates 4 STARS (accumulate)

Analyst: Richard Joy

Shares may be weak Monday on news a of $150 million verdict on Friday by an Oregon jury in the case of a woman who died of lung cancer. S&P expects the judge will reduce the award to the $20 to $30 million range. S&P doesn't see any near-term financial impact, as the case will likely be in appellate courts for years. Litigation defenses remain strong, but West Coast cases are an area of concern. S&P expects the company to use massive free cash flows to fund annual share repurchases of $4 billion. Solid operating results and an above average dividend yield make shares attractive at only 11 times S&P's $4.86 EPS estimate for 2002.

Hanover Compressor (HC): Maintains 3 STARS (hold)

Analyst: Markos Kaminis

The Wall Street Journal says Hanover discovered an error in its annual reports, from 1997 to its most recent reports, that indicates compressor equipment fabrication quantities were understated. The company says it inadvertently omitted the amount of equipment built at a factory in Oklahoma, which made it appear as if certain compressor costs were higher than in actuality. The news article attributes the new CFO as commenting that prior revenues and earnings were unaffected by the error. While this past accounting oversight is troublesome, S&P says the company is cleaning up.

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