Yahoo! Still Worth Holding

S&P says the Web portal has been hurt by the soft economy, but sees it gaining market share. Plus: analyst actions on Motorola and Rational Software

Yahoo (YHOO ): Reiterate 3 STARS (hold)

Analyst: Scott Kessler

Pro forma Q4 EPS $0.13 vs. $0.09. In line with consensus, but $0.02 less than S&P forecast. Revenues up 53% yearly and 5% sequentially, as difficult online advertising market and slowing global economy hurt results. Daily page views rose 15% from Q3 to 900 million.. From Q3, registered users increased from 166 million to 180 million, important active user number rose from 55 million to 60 million.. Q4 results and 2001 guidance indicate YHOO being impacted by economic slowdown. But expect YHOO to continue gaining market share, monetizing customer base.. Would now hold shares.

Motorola (MOT ): Reiterate 2 STARS (avoid)

Analyst: Ari Bensinger

Q4 EPS $0.15 vs. $0.25 (as restated), in line with reduced guidance. Sales up 11%, but operating profit declined 40%. Weakness reflects higher manufacturing costs in handset division (32% of Q4 sales) and slowing unit volume due to customer inventory adjustments in semiconductor division (19%). Expect both issues to carry on until mid 2001. MOT's Q4 handset market share fell to 13.3%, from 15.6% in Q3, per Dataquest. Believe MOT has too many moving parts. With primary businesses expected to struggle near term, would avoid shares.

Rational Software (RATL ): Reiterate 5 STARS (buy)

Analyst: Jonathan Rudy

Co. reports strong results for FY Q3. Posts Q3 EPS (pro forma) of $0.20 vs. $0.13 on 47% higher revenues, above estimates. Bookings much higher, and deferred revenues surged 55% year-over-year. Margins remained strong at 23% operating and 19% net. See FY 02 (Mar.) revenues growing 40%. Raising our FY 01 and 02 EPS estimates to $0.72 and $0.90, from $0.70 and $0.85. Given status as key provider of technology infrastructure for Internet economy, RATL attractive at 46x our CY 01 EPS estimate of $0.84, and 7x sales.

Washington Group International (WNG ): Initiate coverage with 4 STARS (accumulate)

Analyst: Stewart Scharf

Formerly Morrison Knudsen, this provider of engineering and construction services for energy, government and industrial markets continues to expand backlog, now nearly $7 billion, via acquisitions, new project wins. WNG well positioned to capitalize on trends for increased power generation capacity, funding for highway improvements. Stock 25% below Sep. high and selling for only 7.6X our FY 01 (Nov.) estimate of $1.20. at discount to peers' P/E and SmallCap 600, and with 25%+ EPS growth rate, see room.

Airborne Inc. (ABF ): Reiterate 3 STARS (hold)

Analyst: Richard Stice

Company pre-announces lower Q4 earnings than expected, reflecting weaker demand for higher-yield shipments, rising fuel costs and adverse weather. ABF plans to implement rate increase over next few quarters. Lowering our '00 EPS estimate to $0.24, from $0.60, '01's to $0.65, from $0.75. Although results disappointing, online shipment volume exceeded expectations. With lower interest rate environment and shipment rate increase, believe further downside is limited. Expect shares to perform in line with broader market.

Black Box (BBOX ): Reiterate 3 STARS (hold)

Analyst: Markos Kaminis

Posts FY Q3 EPS of $0.84 vs. $0.65, penny ahead of our estimate. Sizable revenue growth continued in Q3, rose 72% from year ago. Organic growth in on-site services operations continued to accelerate, up 21% from year ago FY Q3, vs. 15% rise in FY Q2. Operating margins narrowed as expected (net margin 2 percentage points lower), as BBOX transitions toward on-site services, now 53% of business. Maintaining hold opinion, based on concerns that slowing U.S. economy poses threat to growth in '01. At 15X our FY 02 (Mar.) EPS est. of $3.75, BBOX fairly valued.

Fannie Mae (FNM ): Reiterate 3 STARS (hold)

Analyst: Michael Schneider

Posts Q4 EPS of $1.13 vs. $0.99, penny above expectations. Results exclude $0.01 extraordinary loss on early retirement of debt.. Net mortgage portfolio increased 16% and mortgage-backed securities outstanding rose 10%. Though credit-related expenses up 13%, they remain at very low level. Think political climate in Washington surrounding for entities like FNM is improving. At only 16 times our '01 EPS estimate of $4.85, FNM attractive, given excellent track record, above-average growth prospects and below-market P/E ratio.

AmeriCredit Corp (ACF ): Upgrade to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Robert Tortoriello

FY Q2 EPS of $0.57 vs. $0.36 is 4 cents above estimates. Recent exit of GE Capital from subprime auto lending strengthened ACF's already dominant position. ACF's Spring '00 rate hike is combining with recent reductions in interest rate environment to sizably boost co.'s net interest margin. ACF has emphasized credit quality over volume, resulting in steady declines in charge-offs and solid reserves. With expected long-term growth of 25%, ACF is attractive at 14 times our FY 01 (June) EPS estimate of $2.30.

USG Corp. (USG ): Reiterate 1 STARS (sell)

Analyst: Michael Jaffe

Co. will take Q4 charges of $850 mln. for estimated cost of settling asbestos claims, including those projected to be filed through '03, plus $54 mln. for restructuring, to include closing of several wallboard production lines, cuts in workforce, cutback in discretionary spending. Trimming our '00 est. to $6.30 from $6.45 before charges, '01's to $3.25 from $3.50. Think level of asbestos cases facing USG almost impossible to determine. With excess industry wallboard capacity also likely to limit fundamentals for extended period, would still stay away from shares.

Shaw Group (SGR ): Reiterate 4 STARS (accumulate)

Analyst: Stewart Scharf

Stock up 6% today as co. posts FY Q1 EPS of $0.31 vs. $0.22 (adj.), bit above consensus. $2.1 bil. backlog growing rapidly. 72% of it is from power generation projects, aided by strong demand in California. With $87 million from asset sales and solid cash flow, company's credit needs have been reduced. Although 80% of backlog is domestic, SGR is also seeing growth overseas. With solid earnings prospects, integration of Stone & Webster, see further capital gains despite shares trading at 35 times our $1.40 FY 01 (Aug.) estimate.

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