Clorox (CLX): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Howard Choe
Clorox's profit results raises S&P's confidence in the company's ability to sustain profit growth. June quarter earnings per share is $0.63 vs. $0.45, -- $0.02 higher than S&P and the Street's estimates, driven by higher margins and a lower tax rate. Excluding divestitures, sales and volume rose 5% and 3%, respectively. Cost-cutting and fewer promotions drove operating margin expansion up 360 basis points. Expensing company options in fiscal 2001 (June) would have cut earnings per share by 9%. S&P is raising its fiscal 2003 earnings per share estimate by $0.02 to $2.11. Clorox is attractive at 17 times the forward price-earnings multiple, in line with peers but below its intrinsic value.
Cisco (CSCO): Maintains 3 STARS (hold)
Analyst: Megan Graham Hackett
Cisco posted July-quarter proforma earnings per share of $0.14 vs. $0.02 -- $0.02 above expected. Revenue rose 12%, a bit light, and gross margin was 68%. Cisco sees October-quarter revenue flat to up slightly from the July quarter. S&P is raising the fiscal 2003 (July) earnings per share estimate by $0.02, to $0.54. At 24 times that estimate, below peers, Cisco is worth holding. Still, S&P notes that expensing stock options would have cut fiscal 2001 earnings by $1.7 billion, and a repricing of stock options presents a risk: At July 28, 2001, Cisco had 1.06 billion in options outstanding that were about 67% under water. This figure could roughly double if stock options were repriced at the current share price of around $12.80.
TMP Worldwide (TMPW): Maintains 3 STARS (hold)
Analyst: Mark Basham
Although second quarter pro forma earnings per share of $0.14 vs. $0.36 were in line with estimates, TMP sees no improvement in the second half and cut its 2002 outlook to $0.56. While the stock is reacting adversely, based on sell-side estimates that were as high as $0.90, S&P is maintaining its $0.60 estimate to reflect expectations of a minor improvement for the rest of the year. Cost reductions that TMP has or will enact should enable earnings per share to rise 66% to $1.00 in 2003 on a 8%-9% revenue increase. S&P sees a buying opportunity emerging once bottom sellers are finished.