Still Accumulate Duke Energy

Also: Analysts' opinions on Cox Communications and TXU

Duke Energy (DUK ): Still 4 STARS (accumulate) Analyst: Justin McCann

After Wednesday's nearly 5% drop on concerns about the company's credit exposure to Enron, the stock was up on Thursday. While Duke won't reveal the extent of their exposure, they have reiterated their confidence in achieving earnings growth in the 10%-15% range. Also, Enron's planned asset sales, strong cash flow, and potential issuance of new equity will provide it with means to repay its notes due. With Duke now trading at 13x our 2002 EPS estimate of $2.85, S&P recommends adding Duke positions.

Cox Communications (COX ): Still 3 STARS (hold)

Analyst: Howard Choe Cox's Q3 results were solid but slightly lower than S&P expectations. Revenues were up 14%, helped by strong growth in high-speed data and telephony. Video revenue was up 7%, driven by digital subscriber growth and rate hikes. Advertising revenues weakened further after September 11. Intense competition and cautious consumers have called for increased marketing efforts. Meanwhile, expenses rose 60 bps. As a result, Cox is solid but due to uncertain economy and highest valuation in peer group at 13X enterprise value-to-EBITDA, S&P expects shares to perform in line with the market.

TXU (TXU ): Still 5 STARS (buy)#

Analyst: Justin McCann

The utility posted better than expected Q3 operating EPS of $1.42 vs. $1.25. That excludes $0.14 in one-time charges. Earnings benefited from improved energy-trading margins, which more than offset impact of milder weather on electric operations, and higher O&M expenses at gas units. While reducing our 2001 EPS estimate by $0.05 to $3.65, raising 2002 by $0.10 to $4.75, and sees 2002 benefiting about $0.60 from elimination of goodwill amortization. So with stock at 9x 2002 estimate and dividend yielding 5.4%, shares are attractive for both appreciation and income.

Nabors Industries (NBR ): Upgraded to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Tina Vital

The oil and natural gas exploration and production company reported a third quarter EPS of $0.68 vs. $0.25, $0.02 above the Street consensus. Operating income was up over 250% on Lower 48 drilling. ROAE was about 21% (vs. 23% in the second quarter), avgerage rig years were down 4.7% (from Q2) to 231, avgerage margin/d up 13% to $6,200. Lower U.S. natural gas prices hit mid-continent/shallow water Gulf of Mexico (GOM) hardest, but international oil-focused deepwater GOM, California/Alaska was doing well. It sees 2001 EPS at $2.35, 2002 at $1.88. With shares of Nabors off its 52-week highs by 55+%, and valuations near 1998 lows, S&P recommends accumulating the stock for long-term gains.

Estee Lauder Cos. (EL ): Maintain 2 STARS (avoid)

Analyst: Howard Choe

Before charges, the cosmetics giant reported Sep-Q EPS of $0.38 vs. $0.37, penny above S&P's estimate. Sales were up 0.8%, or 3% if forex impact is excluded. Haircare and makeup sales rose, while skin care and fragrance declined. Americas region sales were down 2% amid soft retail environment. Europe, Middle East and Africa region was up 8% before forex. Operating margin slipped slightly on higher advertising and promotion costs. With consumer concerns about economy and terrorist acts, S&P believes risk of Estee Lauder underperforming continues. Additionally, shares are overvalued at 24 times S&P's fiscal 2002 (June) estimate $1.43.

Foundry Networks (FDRY ): Initiating with 3 STARS (hold)

Analyst: Megan Graham-Hackett

A leading maker of high-performance LAN and WAN switches and Internet routers posted pro forma Q3 EPS of $0.02 vs. $0.23, below the Street mean of $0.05. The downside was from lower revenue than expected, down 34% to $75M vs. our $81M projection, and weaker gross margin at 50.2% vs. 65.1%. The company cites lower volumes as orders slipped after September 11. The company generated positive cash flow on 18% lower accounts receivables. And while book/bill near 1, and orders came back in October, the company did not give guidance. At price to sales of three times, the company is fairly valued vs. its peers.

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