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S&P Cuts Viacom to Hold

Viacom (VIA.B): Downgrades to 3 STARS (hold) from 5 STARS (buy)

Analyst: Tuna Amobi, CFA, CPA

President and COO Karzamin resigned and Viacom nameed as co-COOs Tom Freston and Leslie Moonves, the chairman and CEOs of the MTV Network and CBS Entertainment, respectively. With these appointments being part of a new succession plan, CEO Redstone plans to step down within three years. While Karmazin's contract was through May, 2006, his sudden departure was not entirely unexpected as tensions with Redstone apparently resurfaced on succession and strategic differences. We view Freston and Moonves as highly regarded operators, but Karmazin's loss should weigh on the stock, despite an upbeat ad outlook.

Mohawk Industries (MHK): Maintains 4 STARS (accumulate)

Analyst: Amrit Tewary

Year to date through May 28, the S&P Home Furnishings Index has advanced 5.3% compared with 1.1% rise for the S&P 1500. We project continued robust levels of housing activity in 2004 and think that sales of home furnishings are likely to receive lagging benefit from strong levels of housing turnover. But we think that valuation gains for home-furnishings companies may be limited over next 12 months by some uncertainty about the strength of an economic recovery and prospect of higher interest rates.

United Natural Foods (UNFI): Maintains 3 STARS (hold)

Analyst: Anishka Clarke

United Natural Foods posted April-quarter operating earnings per share of 22 cents, vs. 16 cents, beating our 20 cents estimate. Margins benefited from stronger sales than expected, controlled operating expenses, and much lower debt costs. We see further margin expansion in fiscal 2005 (July) on likely acquisition synergies and expanded distribution. We estimate fiscal 2004 earnings per share of 77 cents, vs. 76 cents, and are raising our fiscal 2005 estimate to $1.00 from 98 cents. We would hold the shares, trading at 25 times our $1.08 calendar 2005 estimate, near its historical high. We are raising our 12-month target price to $29 from $26, based on discounted cash-flow and p-e analyses.

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