Microsoft (MSFT): Maintains 4 STARS (accumulate)
Analyst: Jonathan Rudy
A Financial Times reported that Microsoft is in the final stages of a $1.2 billion acquisition of NavisionDamgaard, the Danish enterprise software group. Strategically, the deal would boost Microsoft's presence in the European small to medium enterprise market. With a reported price at 6.6 times sales for NavisionDamgaard, S&P believes that the deal is reasonable, but is not cheap considering the environment. However, details of the transaction are still hazy, so it's difficult to evaluate at this point. With over $38 billion in cash and short-term investments,
S&P says Microsoft has a war chest for potential acquisitions.
Micron Technology (MU): Maintain 3 STARS (hold)
Analyst: Thomas Smith
Micron's deal to buy Hynix Semiconductor's memory chip operations for over $ 3 billion in Micron stock failed. Hynix board did not accept the restructuring plan from creditors. The deadline to approve the non-binding memo with Micron has passed. Hynix's president, who supported the deal, reportedly resigned, so S&P believes the end of talks is finally here. S&P also expects Micron to prosper in the next multi-year chip industry upturn. Without Hynix, and with debt under control, Micron's status as low-cost DRAM producer is maintained. Spot pricing for DRAM was soft in April, so S&P still is neutral on Micron shares.
Performance Food Group (PFGC): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Joseph Agnese
The company posted first quarter earnings per share of of $0.24 on 21% more shares, vs. $0.16 -- a penny above S&P's estimate. Net sales rose 38%. Real sales growth was 8% before 2% inflation, and 28% from acquisitions. S&P sees long-term broadline growth in the lower double digits on strengthening restaurant sales. The acquisition strategy in a very fragmented industry is focused on contiguous geography. S&P is raising the 2002 EPS estimate by $0.03, to $1.43, reflecting margin improvements and recovery in the lettuce market. At 24 times that estimate, Performance Food shares are undervalued.