Oxford Health (OXHP ): Reiterate 5 STARS (buy)
Analyst: John Massey
The health-care provider posted Q4 EPS of $0.62 before one-time items vs. $0.32, above our $0.52 estimate. Premium revenue rose slightly on healthy rate increases. Oxford enjoyed its first sequential member growth since 1998 and added 14,000 commercial fully insured members in January. Excluding favorable items, Oxford's medical-loss ratio was 78.6% vs. 81.8%, and its administrative ratio was 11.2% vs. 12.5%. The company bought back preferred shares and warrants, and also recapitalized its senior notes. We see 5% member growth and 8%-9% commercial rate hikes in 2001. With shares trading at 15 times our 2001 EPS estimate of $2.45, Oxford is a bargain.
Computer Sciences (CSC ): Reiterate 5 STARS (buy)
Analyst: Jonathan Rudy
The technology-consulting firm posted fiscal Q3 EPS of $0.72 vs. $0.66, two cents below estimates. Revenues rose 13%, while European revenues climbed 8%, or 24% in local currency. We anticipate revenue growth acceleration in fiscal 2002 (March). Computer Sciences has signed a strong $9.4 billion in new business during fiscal 2001. However, because of the negative currency impact and the near-term global economic slowdown, we are lowering our fiscal 2001 (March) estimates to $2.86 from $2.97 and also reducing our fiscal 2002 EPS estimates to $3.36 from $3.51. With shares trading at 17 times our fiscal 2002 estimate and with a 15% long-term growth rate, shares of Computer Science are attractive.
JDS Uniphase (JDSU ): Reiterate 5 STARS (buy)
Analyst: Ari Bensinger
The Justice Dept. has cleared the company's $18 billion merger with SDL Inc. Justice's main concern of market concentration in the optical laser market was washed away with today's deal to sell the Zurich laser manufacturing plant to Nortel for $2.5 billion. The combined company will have sales of about $3.3 billion, with limited product overlap. The transaction will be immediately accretive to earnings. It will provide JDS with more manufacturing capacity and better integrated products, particularly in active components. The combination creates a one-stop shop for next generation optical components.
Xerox (XRX ): Maintain 2 STARS (avoid)
Analyst: James Corridore
A former executive alleged that Xerox's accounting issues exist outside of its troubled Mexican unit. The Wall Street Journal says former assistant treasurer James Bingham, who is suing the company for wrongful termination, says Xerox used improper assumptions and other bookkeeping techniques to inflate revenues. Bingham says the accounting errors boosted Xerox's pretax income by a huge sum over the last five years. The SEC is already investigating the copier giant's accounting policies in the wake of the Mexico fiasco. If allegations are proven true, it could lead to a restatement of prior earnings. Add this to the list of woes affecting Xerox, and avoid the stock.
Applied Micro Circuit (AMCC ): Maintain 4 STARS (accumulate)
Analyst: Ari Bensinger
Applied Micro reaffirmed its previous Q4 guidance of high-teens sequential sales growth. However, the company revealed that existing orders have experienced some push-outs and cancellations in the last week. The cancellations may be a temporary blip, but given investors' concern of slower capital spending, Applied Micro prudently remains on alert. The company is not altering its guidance for Q4 or Q1. We see fiscal 2001 (March) EPS at $0.57, and fiscal 2002 at $0.83. The company is attractive as a leading supplier of high-speed silicon in a rapidly growing OC-192 market.