Exxon Mobil (XOM ): Maintains 5 STARS (buy)
Analyst: Tina Vital
The energy giant reported Q1 EPS of $1.44 vs. $0.95 one year earlier, excluding merger effects, $0.09 above the Wall Street consensus. Exploration & production earnings were up 37%; refining & marketing was up 171% (on downstream leverage the company sells 3 barrels of refined products for every one barrel of oil produced); chemicals were down 38%. Capital spending was up 13% to $2.5B; production was about flat. Return on equity was at 20.6%. S&P sees 2001 EPS at $5.33, declining slightly to $5.22 in 2002. While the shares are trading at a premium 17 times S&P's 2001 EPS estimate, the company's strong and balanced growth deserves a premium valuation.
Ericsson (ERICY ): Maintains 3 STARS (hold)
Analyst: Ari Bensinger
Ericsson signed a memorandum of understanding with Japanese electronics giant Sony Corp to create a mobile phone joint venture. S&P views the alliance as extremely positive. The company is experiencing handset design and production difficulties. The unit is dragging down overall profitability (the company suffered a loss of over SEK16 billion in 2000). Ericsson will benefit from Sony's prominent brand name, low cost manufacturing, and strong Japanese presence. The partnership also allows the company to increase its focus on its core mobile infrastructure business. S&P will update this report after the company's 9:00 a.m. ET conference call.
Novellus Systems (NVLS ): Upgraded to 3 STARS (hold) from 2 STARS (avoid)
Analyst: Thomas Smith
The company reported Q1 EPS of $0.62 before a $0.07 acquisition charge, vs. year-ago EPS of $0.17, above the $0.61 consensus estimate. Revenue was up 109% year-over-year, 3.6% from Q4 of 2000. Bookings were weaker as the downturn deepens in the chip equipment industry. Shipments may drop 40% in the June quarter vs. the March quarter. Despite the industry's hard times, chipmakers need to tool up for the switch to copper interconnect materials and 300mm wafers. Novellus' product line is well-positioned.. The January acquisition of Gasonix adds product depth. S&P does not expect a comeback until late 2001, but has moved its opinion up to neutral as the darkest days arrive.