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S&P Says Accumulate IBM

IBM Corp. (IBM): Maintains 4 STARS (accumulate)

Analyst: Megan Graham-Hackett

According to recent court filings, IBM settled part of a lawsuit over its pension plan for an undisclosed amount. A U.S. District Court Judge ruled that IBM owed compensation to approximately 140,000 current and former workers who were adversely affected when the company converted to a cash-balance pension plan in 1999. However, IBM plans to appeal the ruling. Given the company's sizeable cash balance and with shares trading below our $105 12-month target price, we continue to view IBM as attractive.

Cintas (CTAS): Maintains 4 STARS (accumulate)

Analyst: Bryon Korutz; Amy West, CFA

Cintas posted August-quarter earnings per share of 42 cents, vs. 37 cents, in line with our estimate of 42 cents, as sales rose 10% and gross margins widened slightly. The company reiterated its fiscal 2005 (May) earnings per share guidance of $1.70 to $1.80. We continue to project rising profit margins, 7.2% revenue growth, and earnings per share of $1.80 in fiscal 2005, followed by 11% earnings per share growth in fiscal 2006. We are maintaining our 12-month target price of $56, based on our discounted cash-flow model, which assumes an 8.9% cost of capital, 15-year annualized growth at 11.5%, and 3% terminal growth.

3Com (COMS): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

3Com posted an August-quarter GAAP loss of 9 cents, vs. a a year ago's loss of 29 cents, but excluding one-time charges, we estimate the loss was 8 cents, vs. our 7-cent loss estimate, in line with the preannouncement guidance. Revenues fell 11% quarter-over-quarter; sales of 10/100 switches were in line, but sales in Europe, Middle East, and Africa were weak. Gross margin fell 300 basis points. 3Com sees November-quarter revenues of $170 million to $180 million, in line with our model, but gross margin of 38%, slightly below our estimate. We're widening our loss estimate to 24 cents from a 20-cent loss. We think 3Com is worth holding, as shares are trading at a steep discount to peers on a price-sales basis.

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