Upgrading BP to Accumulate

Also: analysts' opinions on Cisco and HCA

BP (BP ): Upgrade to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Tina Vital

Adjusted for special items, BP's Q2 proforma income was $3.8 billion vs. $3.6 billion, slightly above the Street's expectations. Adjusted income for exploration and production rose 8%; gas and power rose 52%, and refining and marketing climbed 26%. However, chemicals fell 98%. In other segments, oil production was flat, while gas revenues were up 11%. S&P expects annual barrel-of-oil-equivalent (BOE) growth at 5.5%-7%, and sees exploration and production spending up 57%. S&P also sees 2001 EPS at $3.28, with 2002's at $3.27. BP is trading in line with peers at 15 times the 2002 EPS estimate. With above-average production growth expected and its current share price down 12% from its 52-week high, S&P thinks BP is attractive.

Cisco Systems (CSCO ): Reiterates 3 STARS (hold)

Analyst: Megan Graham Hackett

The Internet switching-equipment maker posted Q4 (pro forma) EPS of $0.02 vs. $0.16, meeting the Street's mean. Revenue fell 25% to $4.3 billion, in line with S&P's estimates. But the key news: the company generated Q4 cash flow from operations of $1.7B, saw inventories fall $200M vs. Q3, and had a book-to-bill ratio above one. As S&P expected, Cisco says U.S. enterprise sales are stabilizing, but they are still cautious on international markets and sees Q1 revenue flat to down 5% vs. Q4. S&P is cutting the fiscal 2902 estimate (July) to $0.20 from the prior $0.35, but thinks this move could prove to be conservative. With improved short-term visibility, shares are trading near $18-$22 the instrinsic value, based on S&P's discounted-cash flow analysis.

HCA (HCA ): Maintains 5 STARS (buy)

Analyst: Robert Gold

The healthcare concern was ordered to pay approximately $745 million in accordance with settlement terms previously reached in a Medicare fraud investigation. The amount of payment was very much expected and fully budgeted by HCA, and moves the company closer to resolving all outstanding litigation with the Dept. of Justice. At this stage, the majority of these issues have been resolved, and S&P looks for HCA valuation to expand as the company's focus returns to increasingly bullish operating trends. At 20 times S&P's 2002 EPS estimate, and at 1.4x sales and 7.0x EBITDA, HCA is the cheapest name in the hospital group.

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