Lear Corp. (LEA ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Efraim Levy

The company posted first quarter earnings per share of $0.70 vs. adjusted $0.53 -- $0.10 above estimates. Vehicle production in North America rose higher than anticipated, and new business and reduced interest expense outweighed lower European and South American production and unfavorable foreign exchange rates. Sales to foreign producers will increase. S&P is raising the 2002 EPS forecast to $4.22, and sees 2003's at $4.77. Free cash flow before restructuring should approximate EPS. Although the company is highly leveraged and vulnerable to a reduction in vehicle production, Lear is attractive at about 10 times S&P's 2003 free cash flow estimate.

Reuters Holdings (RTRSY ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: William Donald

S&P sees the shares continuing to drift lower on a disappointing outlook, despite stepped-up cost cutting and other measures. First quarter revenue before disposals, acquisitions and currency moves fell 13%, including a 42% plunge at 83%-owned Instinet and 2% at Reuters. The company said the second-half rate of decline in subscription revenue will worsen to 5%-6%, from 2%-3% in the first half. This fell 1% in the first quarter. The outlook is dim for Instinet, which is hurting from the slump in U.S. stock trading volume and fierce competition. S&P is cutting the 2002 earnings per ADR estimate to $1.50 from $2.61.

Krispy Kreme Doughnuts (KKD ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: D. Milton

Shares are unattractive at 58 times S&P's fiscal 2003 (Jan.) earnings per share estimate of $0.64. Although S&P expects Krispy Kreme to outperform its current guidance of $0.62 for fiscal 2003, as well as $0.14 for its April quarter, vs. S&P's estimate of $0.15, S&P sees the company having difficulty maintaining its growth momentum against increasingly difficult comparisons. S&P's cash flow model, which assumes high but declining sales growth rates over the next decade, beginning at 40% in fiscal 2003, values the company at around $32 per share.

Lexmark International (LXK ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

The company posted first quarter earnings per share of $0.53 vs. $0.60, $0.05 ahead of expectations. Revenue was up a stronger than expected 6% year to year, to $1.05 billion, above the company's guidance, led by a healthy 16% growth in laser and inkjet printer supplies, while laser and inkjet printer revenues were up 5%. Gross margin of 29.5% vs. 33.4% wasjust below S&P's estimate. The company expects second quarter revenue up to a double-digit level year over year, vs. A&P's 3.5% estimate, and sees EPS of $0.56- $0.66, vs. S&P's $0.56 estimate. Though the IT outlook weak, Lexmark sees a benefit from new products. S&P is upping the full 2002 estimate by $0.05 to $2.48. At 24 times this estimate, and with shares in line with peers, S&P says hold.

WorldCom (WCOM ): Reiterates 1 STAR (sell)

Analyst: Thomas Rosenbluth

After the Friday close, WorldCom provided weak 2002 guidance and now sees revenues of $21-$21.5 billion (S&P forecast $21.9 billion) and EBITDA of $7.0-$7.5 billion (S&P forecase $8.2 billion). WorldCom also is cutting the capital expenditures projection 10% to $4.5 billion. S&P expected weakness in voice volumes and lower demand for data network, but thinks the degree of the warning is worrisome even after WorldCom's peers reduced their targets. The company will report first quarter earnings per share on April 26. S&P is slashing the 2002 EPS estimate by $0.26 to $0.42 and is reviewing 2003 estimats. Given the sluggish prospects, continuing SEC investigation, and credit risks, S&P says shares are unattractive vs. peers and the broader market.

Lucent Technologies (LU ): Maintains3 STARS (hold)

Analyst: Ari Bensinger

The company posted a March quarter loss of $0.20, vs. a $0.41 loss, near lowered guidance. Revenue rose 2% from the December quarter on solid U.S. mobility sales. Results were well above peers, indicating market share gains. Gross margin rose nine basis points to 23%, and S&P believes a 35% target in fiscal 2003 (Sept.) is achievable. Lucent will spinoff Agere Systems by June. Given continued telecom spending weakness, the company lowered its quarterly revenue breakeven point from $4.25 billion to below $4 billion. Lucent expects further workforce cuts. S&P thinks $4.8 billion in cash, and a $1.5 billion credit facility is enough to manuever through the downturn. At an enterprise value under two times S&P's 2002 sales estimate, hold these shares.

Pixar (PIXR ): Maintains 4 STARS (accumulate)

Analyst: Mark Basham

Partnership with Disney announced the names of the last two animated films under the deal's original terms. "Cars" is set to premiere during the 2005 holiday season, following the "The Incredibles", which is set for holiday 2004. This marks the acceleration of releases to just one year between pictures. These movies are to follow "Finding Nemo", set for summer 2003. Also Monsters, Inc. crossed the $500 million worldwide box office. Pixar is likely to get a better financial deal for films beyond these current plans, whether with Disney, another partner, or via its own distribution.

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