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S&P Says Buy Citigroup


Citigroup (C): Maintains 5 STARS (buy)

Analyst: Stephen Biggar

The company announced a new business unit to include equity research and private client brokerage. With the new unit to be headed by a former independent research firm chief, this move appears to preempt the issues of research and investment banking separation now being contemplated by regulators, while also providing conduit for lucrative private client business. S&P still believes a settlement on previous practices is likely. With regulatory clouds lifting, and a strong consumer finance business and historical valuation discount, Citigroup is attractive.

RehabCare (RHB): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Mark Basham

The company posted third quarter earnings per share of 41 cents vs. 44 cents, which topped S&P's estimate of 39 cents, as a 10% share buyback more than offset disappointing growth. RehabCare warned that 2002's results will come in below the prior guidance, and S&P is trimming its estimate to $1.35 from $1.40. Increased competition in therapy services and a slower turnaround in its staffing unit has prompted S&P to reduce its 2003 revenue growth forecast to 6.6% from 8.7%, and to lower it earnings per share estimate to $1.65 from $1.90. S&P is also cutting its intrinsic value target range, based on a discounted cash flow analysis, to $20-$22 from $26-$28.

Darden Restaurants (DRI): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Dennis Milton

The company reported same-store sales grew 2%-3% at Olive Garden in October, but fell 2%-3% at Red Lobster. Darden notes a more challenging environment and a disappointing advertising campaign at Red Lobster. S&P is reducing its November quarter earnings per share estimate by a penny, to 22 cents, in line with company guidance. Shares trade at 15 times S&P's fiscal 2003 (May) earnings per share estimate of $1.49, in line with peers. Given lower consumer confidence levels, and Darden's difficult year-to-year comparisons, S&P would not for now add to positions.


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