Sprint FON (FON) : Downgrades to 1 STAR (sell) from 2 STARS (avoid)
Analyst: Todd Rosenbluth
Sprint FON warned that 2002 revenues would be down in the mid-single digits, vs. prior guidance of low single digits, reflecting price pressures in long distance. However, it raised its guidance for full year 2002 to near $1.40. S&P questions the spending cuts needed to meet this lofty earnings per share target, and has left the $1.33 estimate unchanged. Also, with continued weakness in tracking stock Sprint PCS, S&P sees more funding required from the parent. With both of Sprint's operating markets becoming problematic, Sprint shares are unattractive at a price-earnings premium to peers.
RadioShack (RSH): Downgrades to 1 STAR (sell) from 3 STARS (hold)
Analyst: Thomas Graves
The action reflects S&P's concern about future unit growth and pricing pressure for RadioShack's Sprint PCS and Verizon Wireless business. S&P is keeping the second quarter earnings per share estimate at $0.29 but is trimming the estimate for full year 2002 to $1.68 from $1.70 and for 2003 to $1.85 from $1.90. RadioShack should have competitive strength in parts, batteries and accessories, but S&P expects its stock to be under pressure from concern about the company's wireless business and overall EPS growth prospects.
Adobe (ADBE): Upgrades to 3 STARS (hold) from 2 STARS (avoid)
Analyst: Scott Kessler
Before one-time items and amortization of goodwill, Adobe's May quarter earnings per share were $0.27 vs. $0.34, beating S&P and the Street's estimates. Revenues fell 8% on weak technology spending, but Photoshop 7 release and sales were solid. Operating margin of 28.7% was better than S&P expected on great cost controls. S&P is not adjusting the fiscal 2002 (Nov.) forecasts much, but is trimming fiscal 2003 estimates for sales by 9% to $1.4 billion and is cutting the earnings per share estimate by $0.09 to $1.22. Adobe is on par with S&P's estimate of $31 intrinsic value, based on discounted cash flow analysis.