Advanta (ADVNA ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Susan Dawkins, Stephen Biggar

Financial services company Advanta reduced its 2003 earnings per share guidance to $1.30-$1.50 on weakening credit quality expected in the first half of 2003. Efforts to improve collections and attract/retain higher credit quality customers are likely to pressure margins. Tight competition and related lower net income expectations, as well as the timing of an economic recovery, gives S&P less confidence in the company's goal of a progressive earnings per share improvement in the second half of 2003. Although shares are trading at seven times S&P's 2003 earnings per share estimate, S&P says less visibility warrants caution.

El Paso (EP ): Reiterates 2 STARS (avoid)

Analyst: Craig Shere

Shares of the energy company are off 9% Tuesday after Moody's, a major credit agency, downgraded El Paso's debt rating to junk status. Credit concerns cited include capital expenditures in excess of operating cash flow, potential regulatory liabilities, and execution risk on asset sales and the wind-down of energy trading operations. The downgrade will certainly result in new demands for collateral and make a renewal of a $3 billion bank facility expiring in May more difficult. Applying recent asset sale multiples to El Paso's cash flows, S&P arrives at a fair value estimate well below the share price.

Eaton Vance (EV ): Maintains 4 STARS (accumulate)

Analyst: Susan Dawkins, Stephen Biggar

Eaton Vance posted October quarter earnings per share of 34 cents vs. 44 cents, below S&P's 41 cent estimate, limited by steeper than expected sales incentives for bond fund launches, and by offering costs from a note repurchase. Revenues fell 5% as managed assets dipped 2% on market declines, partly offset by asset inflows. S&P has put its estimates under review. Asset inflows should continue to be solid, driven by strong performance and new products, leading to market share gains. At 17 times S&P's prior fiscal 2003 (Oct.) earnings per share estimate of $1.82, Eaton Vance shares are attractive vs. peers.

Fair Isaac (FIC ): Reiterates 5 STARS (buy)

Analyst: Scott Kessler

Due to what's being called the biggest identity theft case in U.S. history, S&P expects Fair Issac to experience increased demand and mindshare. On Nov. 25, three men were charged with stealing credit information from more than 30,000 people, resulting in at least $2.7 million in losses. Through, Fair Issac offers consumer credit information services, including Equifax Credit Watch, as of Nov. 25. Fair Issac also is the leading provider of fraud detection and prevention services to businesses. With shares trading below S&P's intrinsic value estimate using a cash-flow analysis, S&P says buy.

Citizens Communications (CZN ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Todd Rosenbluth

In an 8-K filing, Citizens said that the SEC is informally investigating $7.8 million of payments the public utility division made for which it did not receive benefits. While this not a sizable amount, S&P is concerned with what other details might materialize since Citizens had spotted only $2.2 million two weeks ago. S&P continues to like the rural telephone carrier's EBITDA margins and debt reduction steps. But given the fragility of telecom investor sentiment, S&P says it would put funds elsewhere for now, given Citizens' premium price to peers, based on sales and EBITDA multiples.

Semtech (SMTC ): Maintains 2 STARS (avoid)

Analyst: Megan Graham Hackett

The company posted October quarter earnings per share of 17 cents vs. 10 cents, above the Street's 14 cent estimate, but an estimated eight cents came from a non-recurring gain. Revenues were $47.2 million, falling 9% quarter over quarter, while the company had expected revenues of flat to down 5% as Test & Measurement and power desktop management sales disappointed. Semtech sees January quarter revenues also below expectations at $43 million to $45 million vs. the Street's mean of $51.4 million, and the company needs turns orders of 47% to meet that target. S&P is lowering the fiscal 2003 (Jan.) earnings per share estimate by a penny to 54 cents. At a price-sales ratio of six, above peers, S&P says avoid.

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