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S&P Says Accumulate Pre-Paid Legal


Pre-Paid Legal (PPD): Reiterates 4 STARS (accumulate)

Analyst: Markos Kaminis

The company released production data: Fourth quarter new memberships written decreased 6%, but active memberships rose 11%. Revenues are mostly driven by memberships already on the books, but retention declined. Pre-Paid is striving to improve persistency, but the discretionary expense of legal insurance may lose some appeal should consumers tighten their money belts. However, Pre-paid, a developer and marketer of legal services, has improved its cost structure and continues applying cash to share repurchases. At 11 times S&P's 2002 earnings per share estimate of $1.78 and at 1.1 times S&P's 2002 sales estimate, Pre-Paid offers value.

USA Interactive (USAI) and Ticketmaster (TMCS): Reiterates 3 STARS (hold)

Analyst: Mark Basham

An affiliate, Hotels.com, cut its outlook. USA Interactive which has agreed to acquire Ticketmaster in a stock deal, and says fourth quarter profits will be in line with metrics released after the third quarter, despite Hotel.com's warning of a 20% profit shortfall. S&P is keeping the 2002 operating earnings per share estimate unchanged at 40 cents. However, given the possibility of slowed travel as geo-political issues come to a head, S&P would still be cautious on USA Interactive, even though its shares are trading below S&P's cash flow-based intrinsic value range of $26.50-$28.50.

AT&T (T): Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth

The company will take a fourth quarter charge of 15 cents for asset impairment related to its DSL network assets and a charge of 20 cents for workforce cuts in early 2003. However, its shares should be more active Monday on a Wall Street Journal story that the FCC is reviewing local phone rates. This has been ongoing for months, and though S&P still believes the states will continue to set wholesale pricing, higher rates could restrict AT&T's local operation growth. Even with a solid network and improved balance sheet, S&P would stay neutral, based on a slight premium to Sprint FON and on long distance weakness.


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