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S&P Cuts Washington Mutual to Hold

Washington Mutual (WM): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Erik Eisenstein

Washington Mutual shares are lower as the company reduced its 2004 EPS guidance from $4.30 to $4.80, to $3.00 to $3.60, on higher expected long-term interest rates. We are disappointed with Washington Mutual's hedging efforts and with the overall lack of EPS visibility, after an earlier warning in December, 2003. We're lowering our 2004 operating EPS estimate, which excludes 45 cents in gains from discontinued operations in the first quarter, to $2.90, from $3.74, and lowering our 2005 estimate to $3.76, from $4.65. We are cutting our 12-month target price to $38 from $45 reflecting a below average historical p-e off our 2005 estimate.

Conoco Phillips (COP) Maintains 4 STARS (accumulate)

Analyst: Tina Vital

Conoco has been reshaping its upstream to focus on higher growth assets. While we expect a 3% drop in production this year as a result of downtime, we expect development projects to lead to growth of near 4% by 2006. Based on our upwardly revised oil and gas price projections, we are raising our 2004 EPS estimate to $8.76 from $7.59 and our 2005 estimate to $7.48 from $6.08. Yielding 2.3%, a blend of our discounted cash flow and peer valuations leads us to raise our 12-month target price by $6 to $86, representing about 11.5 times our 2005 EPS estimate, a discount to peers due to near-term volume declines.

Ameren (AEE), Energy East (EAS), and American Electric Power (AEP) 43.71 ): Maintains 3 STARS (hold); Northeast Utilities (NU) and CMS Energy (CMS): Maintains 2 STARS (avoid)

Analyst: James McCann

Given the rising interest rate environment we see, we remain slightly negative on the utilities sector. However, in applying an approximation of the p-e multiples on our 2004 EPS estimates to our EPS estimates for 2005, we are raising our 12-month target price on Ameren by $2 to $46, Energy East by $2 to $25, American Electric Power by $1 to $33, Northeast Utilities by $1 to $18, and CMS Energy by $1 to $8.

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