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Sell Dow Jones

Dow Jones (DJ): Reiterates 5 STARS (sell)

Analyst: William Donald

Dow Jones expects third-quarter earnings per share at the low end of guidance, a mid-single digit gain. The company sees a 12% ad linage decline at The Wall Street Journal for the third quarter. Improving trends in real estate and color advertising were more than offset by weakness in general, technology and financial advertising.

Excluding $1.94 of capital gains, S&P sees earnings per share for full year 2002 at $0.81. S&P is cutting the 2003 estimate to $1.17 from $1.65 to reflect a protracted ad recovery. Dow Jones still is over-valued at 53 times S&P's 2002 earnings per share estimate and 37 times S&P's 2003 estimate. The inclusion of an option expense would have reduced 2001 earnings per share by $0.16, or 14%.

Polo Ralph Lauren (RL): Initiates coverage with 3 STARS (hold)

Analyst: Karen Sack

Although S&P anticipates improved sales in the second half of fiscal 2003 (Mar.), the retail environment will remain competitive and the men's business lackluster. Ralph Lauren has done a good job in cutting back on inventory, down some 16% from a year ago at the end of the first quarter. New product lines for fall, the women's Blue Label line, and a new spring line should boost revenues. Margins should widen, resulting in a 7% increase in fiscal 2003 earnings per share. But with an uncertain economic outlook, the shares appear fairly valued at 13 times S&P's estimate.

General Dynamics (GD) and Northrop Grumman (NOC)

Analyst: Robert Friedman, James Sanders

The stocks are up 6% and 3%, respectively, due to the announcement by the U.S. Navy of contract awards. General Dynamics was awarded a $3.2 billion contract to produce six Aegis destroyers during the next four years and Northrop was awarded a $1.9 billion contract to produce four DDG-51 destroyers. Monday's announcement is really a non-event as both contracts were agreed upon back and made public in June. As a result, S&P is maintaining its hold recommendations.

Dominion Resources (D): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Justin McCann

The downgrade reflects a reduction of 2003 earnings per share by $0.30 to $5.00, with new equity issuance accounting for about $0.17 of the reduction. Increased security costs for six nuclear units, higher pension and asset retirement expenses, and other administrative costs are expected to reduce earnings per share by about $0.13. The issuance of equity is intended to strengthen Dominion's balance sheet and to maintain its strong investment grade rating. S&P says cash flow will remain strong, and netting is projected at $2.9 billion in 2003, vs. the expected $2.5 billion in 2002.

Genzyme (GENZ): Maintains 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Genzyme lowered its 2002 Renagel sales guidance to a range of $155 million to $165 million, down from prior guidance of $200 million to $210 million. The drug maker now sees 2002 earnings per share between $1.08-$1.11. An FDA panel will review the company's Fabrazyme therapy to treat Fabry disease on Sept. 26.

S&P feels the FDA's approval is necessary to change negative sentiment. Aldurazyme, a drug to treat the MPS-1 genetic disease, should receive response from the FDA by early 2003. S&P is lowering the 2002 earnings per share estimate to $1.08 from $1.13, and is trimming the $1.46 2003 estimate to $1.41. Based on a Net Present Value analysis of Genzyme's products/pipeline, S&P feels shares are moderately undervalued.

MGIC Investment (MTG), PMI Group (PMI) and Radian Group (RDN): Maintains 3 STARS (hold)

Analyst: Erik Eisenstein

Stocks may be weak Monday, as industry leader MGIC warned that it expects third-quarter earnings per share before realized gains between $1.40-$1.45. The Street's consensus estimate was $1.58. The shortfall reflects heavy refinancing and higher delinquencies. S&P says the former is not surprising, but the large increase in delinquencies since the second quarter is unsettling. Still, the strong housing market makes losses less likely. S&P is reviewing estimates, but would still hold these stocks, all of which are trading under two times their book value.

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