CIT Group (CIT ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)
Analyst: Robert McMillan
With two major airlines already in bankruptcy and others possibly to follow or request aircraft lease concessions, shares of this major aircraft lessor and diversified commercial and consumer finance company will likely be under near-term pressure. Moreover, concerns over business spending and credit trends amid a weak economic recovery and geopolitical fears should also pressure shares. S&P would avoid CIT at 6.5 times the 2003 $2.65 estimate and below the long-term growth rate, until the company's business spending and credit outlook improves.
Comcast (CMCSA ): Reiterates 5 STARS (buy) and Liberty Media (L ): Reiterates 4 STARS (accumulate)
Analyst: Tuna Amobi
Liberty on Monday notified Comcast of its election to trigger an exit process for its 42% interest in QVC, the home-shopping retailer that is is 58% owned by Comcast. Under the terms, Comcast has the right of first refusal to buy out Liberty within 30 days at a fair (subject to mutual agreement) or appraised value; failing this outcome, Liberty can elect to buy within the next 30 days. If both parties pass, QVC is the subject to third party bids. While S&P won't speculate on the outcome, Liberty might have more compelling incentives to buy. Still, a sale by either party could be a win-win situation.
Furniture Brands (FBN ): Maintains 4 STARS (accumulate)
Analyst: Efraim Levy
The company warned that first quarter earnings per share of 50 cents to 55 cents will be below the year-earlier 58 cents result and the Street's mean estimate of 56 cents. Declines in mid-and high-end furniture penalized first-quarter sales and earnings, which were exacerbated by bad weather that impacted both retail sales and manufacturing efficiencies. S&P expects first quarter earnings per share of 53 cents. With a recovery remaining distant, S&P is reducing the 2003 earnings per share estimate from $2.42 to $2.30. With a lower than peers single-digit price-earnings multiple on the 2003 earnings per share estimate, Furniture Brands should outperform.
First Data (FDC ): Maintains 4 STARS (accumulate)
Analyst: Scott Kessler
First Data shares are weak Monday on news that Bank One won't renew its card-processing contract, which is scheduled to end in June 2004. Bank One's decision was widely anticipated, and in S&P's estimation, already was largely priced into First Data's stock. S&P says Bank One was motivated largely its desire to reduce costs and eventually bring its card-processing operations in-house. S&P thinks the new contract award, which was given to Total System Services, was based largely on price. Under the current terms of the deal, S&P says the Bank One contract actually provides minimal earnings per share to First Data due to its unfavorable terms. With a below-market price-earnings-to-growth multiple and good earnings per share visibility, S&P says accumulate First Data.
Boeing (BA ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Robert Friedman
Although the aerospace behemoth's commercial aircraft unit (50% of sales; 60% of profits) should continue to experience strong near-term turbulence from the ailing airline industry, S&P nevertheless believes the market is materially mispricing the stock. Even after using a modest 4%-6% 10-year free cash compound annual growth rate and 12% return on equity assumptions, S&P's discounted cash flow models still value the company between $41 and $47 a share. As such, S&P thinks the stock is trading at a sufficiently wide 30%+ price-to value discount.
Yellow Corp. (YELL ): Reiterates 5 STARS (buy)
Analyst: James Corridore
Yellow expects first quarter earnings per share to be at the low end of the prior 15 cents to 20 cents guidance, as the quarter has been hurt by the weather. The company reiterated full-year guidance of $2.25-$2.35, as the first quarter typically only makes up a small portion of the annual earnings per share. S&P saysYellow is the best positioned ligh truck load less than truck load (LTL) trucker and sees material revenue growth and earnings improvement in 2003. Investors spooked about rising oil prices should realize Yellow and other LTL truckers get most of the rising costs back with a fuel surcharge. Shares are trading at 10 times S&P's 2003 earnings per share target of $2.32, and the stock is discounted vs. peers.
Palm (PALM ): Reiterates 3 STARS (hold)
Analyst: Megan Graham Hackett
Palm preannounced a February quarter shortfall on disappointing sales of its high-end Tungsten handheld due to weak corporate spending. The company sees revenues of $205 million to $210 million, below the prior guidance of $230 million to $250 million. S&P now estimates a 53-cent loss for the quarter, vs. the prior loss estimate of a seven-cent loss. S&P's fiscal 2003 (May) loss is now $1.93 vs. the prior $1.16 loss estimate. While the sizeable revenue shortfall disappointing, S&P says with cash and short-term investments of more than $9 per share, Palm is worth holding.