News Corp. (NWS): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Thomas Graves
The company posted third quarter earnings per ADR, before unusual charge, of $0.18 vs. $0.12, above estimates. The third quarter was helped by strength of film, TV syndication, TV station & cable network businesses. S&P is raising the fiscal 2002 (June) earnings per share estimate to $0.52, from $0.49 and will look for $0.70 in fiscal 2003. S&P believes News Corp. is well positioned to benefit from future improvements in advertising demand, and the movement toward newer technologies for delivering entertainment and information. Also, the company could benefit if regulators block the combination of Echostar & DirecTV.
Idec Pharmaceuticals (IDPH): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)
Analyst: Frank DiLorenzo
The stock is off sharply since March, possibly on concerns about initial Zevalin sales and lagging Medicare reimbursements. However, S&P assumes a moderate Zevalin rise in 2002 to $31 million, followed by a surge in 2003 sales to $101 million. On a price-earnings-to-growth basis, Idec's 1.1 multiple -- based on S&P's 2003 estimate -- compares to 1.3 times for peers. S&P continues to feel Rituxan sales will reach $1.5 billion by 2005 and sees 2002 earnings per share of $0.88, and sees 2003's at $1.22 along with 2004's at $1.58. Relative to peers and the market, the shares should outperform on high profitability and superior prospects.
PacifiCare Health (PHSY): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)
Analyst: Phillip Seligman
The assistant U.S. Attorney in Boston requested additional documents, and served the company additional subpoenas relating to pharmaceutical marketing and contracts. However, PacifiCare is not a target of an investigation. In early 2000, the company received subpoenas from the same Assistant U.S. Attorney related to pharmaceutical products. Although PacifiCare seems to be turning around and trades at a discount to peers, S&P believes the news adds more doubt. S&P would wait until the uncertainty surrounding the latest subpoenas dissipates before adding to positions.
US Airways (U): Maintains 2 STARS (avoid)
Analyst: James Corridore
Shares are lower Tuesday as the airline will be removed from the S&P 500 Index because of lack of industry representatiom. The move reflects US Air's acknowledgement that it may file for bankruptcy if it is unable to get concessions from stakeholders and loan guarantees from U.S. government. S&P feels that without concessions, any government guarantee is unlikely and will be of limited assistance. S&P sees a high risk for bankruptcy and thinks investors wanting to get into the airline sector have better choices. S&P likes Southwest Airlines (LUV), Northwest Airlines (NWAC), Alaska Air (ALK) and Continental Airlines (CAL).
WorldCom (WCOM): Reiterates 2 STARS (avoid)
Analyst: Thomas Rosenbluth
Shares are lower Tuesdsay as WorldCom was dropped from the S&P 500 Index on lack of industry representation. Despite a 90% decline year to date, S&P sees shares continuing weak as certain institutional investors must now exit positions in WorldCom. This is just the latest news to hurt the troubled carrier under its new CEO. Persistent liquidity concerns, a wide-ranging SEC probe and a sluggish long-distance market is leading to a challenging operating environment for WorldCom. S&P thinks shares remain quite risky.