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Still Buy Citigroup

Citigroup (C): Reiterates 5 STARS (buy)

Analyst: Stephen Biggar

Shares are under pressure Monday on news that the National Association of Securites Dealers is taking regulatory action against Salomon analyst Jack Grubman for securities violations, and on reports that certain lending arranged by Citgroup enabled now-bankrupt Enron to bolster its cash flow. S&P thinks any hit from the Salomon story will be small; history has shown that the penalty will likely be in the form of modest fines. Enron's financing technique is not alleged to be illegal, but rather points to the illusory accounting techniques employed by Enron.

With Citigroup's long term earnings power unaltered, S&P would buy on weakness.

Halliburton (HAL): Upgrades to 2 STARS (avoid) from 1 STAR (sell)

Analyst: Tina Vital

Shares fell Monday after Halliburton said a study estimating its potential future asbestos claims has been completed. The amounts, to be announced on Wednesday, are expected to be substantial. Also, Halliburton says it will record pretax charges of $0.25 per share on an offshore construction project, $0.08 on restructuring, and $0.14 for exiting the pipe-coating business. Despite the bad news, S&P's sees the pending disclosure helping to reduce the uncertainty surrounding the stock.

Apria Healthcare (AHG): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Michael Santicchia

The company posted second quarter earnings per share of $0.47 vs. $0.34, well above S&P's estimate of $0.41. Revenues were up 9.5%, driven by respiratory therapy products. Results benefited from costs very well controlled, and operating margin expanded sequentially to 14.8% from 13.6% in the first quarter.

Apria is trading at 11 times S&P's 2002 EPS estimate of $1.83, a significant discount to its closest peer Lincare Holdings. Lincare is trading at 17.5 times the 2002 earnings estimate. With an 18% EPS projected growth rate, Apria is also attractive on a price/earnings-to-growth basis.

McDonald's (MCD): Upgrades to 4 STARS (accumulate) from 2 STARS (avoid)

Analyst: Dennis Milton

The company's shares have fallen over 20% from their May highs and are now attractively valued. McDonald's performance in Japan and Europe should rebound over the next few years as fears of Mad Cow disease subside, offsetting weakness in the competitive U.S. market. At 15 times S&P's 2003 earnings per share estimate of $1.60, McDonald's shares trade in line with peers. S&P expects they will outperform as the company's solid balance sheet, stable consumer base, and the stronger Euro support the shares in a market seeking safe investments.

Cymer (CYMI): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Richard Tortoriello

The maker of lasers for chipmakers posted second quarter earnings per share of $0.18, vs. $0.15 -- a penny ahead of the Street. Sales were up 5% year-to-year, and up 19% from the first quarter. Cymer is gaining share and now holds 88% of the deep-ultraviolet light source market. In addition, the company won two volume orders, totaling over $200 mililon, for its advanced lasers.

Activity stalled in June, as chipmakers turned more cautious, and S&P has lowered its 2002 EPS estimate to $0.69, from $0.73. Also, S&P is lowering the 2003 estimate to $1.46, from $1.54. However, with Cymer executing very well, S&P sees shares fairly valued at 20 times the 2003 EPS, vs. an estimated three-year EPS growth of 27%.

Amgen (AMGN): Reiterates 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Amgen's Aranesp received FDA approval to treat anemia associated with chemotherapy use. The drug is already approved to treat anemia due to chronic renal failure. Amgen will now compete directly against Johnson & Johnson's Procrit in the lucrative oncology market. Also, questions linger over the manufacturing and safety of J&J's Eprex, which should be a positive for Amgen's Aranesp in the European market.

S&P sees proforma earnings per share of $1.30 in 2002, $1.65 in 2003, and $2.03 in 2004. Based on a recent string of positive events and discounted cash flows, S&P feels the shares remain attractive.

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