Household International (HI): Maintains 3 STARS (hold)
Analyst: Robert McMillan
Iowa's attorney general announced that Household's $484 million settlement of predatory lending allegations has been approved by all 5 states and the district of Columbia. Resolution of this issue should help lessen concerns about the credit lender's acquisition by HSBC Holdings. S&P is maintaining its earnings per share estimates of $4.41 for 2002 and $4.29 for 2003. Given the pending takeover by HSBC at about $30 per share, S&P still feels that the shares have limited upside potential and would not add to positions.
Aether Systems (AETH) and Interwoven (IWOV): Maintains 3 STARS (hold)
Analyst: Scott Kessler
The companies' shares are higher Monday on no material news. With solid market positions in high-growth segments, good technology, and strong balance sheets, S&P thinks Aether and Interwoven shares might be higher on takeover speculation. However, the companies' recent and expected 2003 losses are evidence of significant operational challenges, which have resulted in substantial market-cap declines. While software merger and acquisition activity has shown recent signs of life, S&P wouldn't recommend chasing these speculative names.
Teekay Shipping (TK): Maintains 3 STARS (hold)
Analyst: John Kartsonas
Teekay agreed to acquire Navion Statoil's wholly-owned shipping business, for a total consideration of $800 million in cash. The acquisition, expected to close in the second quarter of 2003, will be financed with debt, which should raise Teekay's net debt to total capitalization to above 50%. The deal is valued at about 6.6 times the EBITDA, slightly lower than the average trading multiple of peers and will add about $1 per share to earnings. S&P is putting the 2003 earnings per share estimate under review. At seven times the 2003 EBITDA estimate, S&P would continue to hold shares.
HealthSouth (HRC): Maintains 2 STARS (avoid)
Analyst: Phillip Seligman
The health care services company sees 2003 earnings per share of 55 cents to 57 cents, vs. S&P's estimate of 60 cents. Its revenue guidance of $4.23 billion to $4.32 billion was below S&P's estimate, due mainly to a likely greater decline in outpatient rehabilitation visits than S&P had been expecting. But its 24.2% to 25.8% EBITDA forecast is above S&P's forecast, suggesting the company sees good progress in cutting its cost structure. S&P is encouraged by HealthSouth's detailed guidance, a good first step to rebuilding its credibility, but thinks the company has ways to go. HealthSouth may remain under pressure for quite a while also due to an SEC inquiry into stock sales by the company's chairman as well as rating agency downgrades. [Note: An earlier version of this story incorrectly stated the subject of the SEC inquiry.]
Worthington Industries (WOR): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)
Analyst: Leo Larkin
S&P anticipates that recent positive earnings per share surprises will diminish for the balance of fiscal 2003. Also, S&P projects fiscal 2004 (May) earnings per share of $1.20 vs. $1.15 earnings per share estimated for fiscal 2003. The lion's share of recent earnings per share gains reflect strength in steel processing, which relies heavily on auto production and sales. S&P expects momentum to wane in this segment as automakers cut output and liquidate inventories. With earnings per share slowing near and intermediate term, S&P sees Worthington as just a market performer.