Still Hold Hewlett-Packard

S&P remains neutral on the stock despite H-P's Q1 earnings miss; Also: opinions on Gateway and America Online/Time Warner

Hewlett-Packard Co. (HWP ): Reiterate 3 STARS (hold)

Analyst: Megan Graham-Hackett

Co. cited sharply weaker consumer spending on technology in December for Q1 EPS shortfall. also saw corporate spending decelerate for "the moment" due to increased caution reflecting economic slowdown. but did see sales for Internet infrastructure growing. No order cancellations by corporate customers. Co. sees Q4 revs. up low-to mid-single digits despite entering qtr. with healthy order growth. Co. didn't offer FY 01 guidance, but we believe our $1.84 reduced est. for FY 01 reasonable and reflects challenging macro environment.

Gateway (GTW ): Reiterate 3 STARS (hold)

Analyst: Megan Graham-Hackett

Co. posts disappointing Q4 oper. EPS early of $0.12 vs. Street mean, our est. of $0.37 on worse-than-expected consumer PC sales. Rev. in line with our est. at $2.4B, but below co.'s $3B target. co. admits lagged peers on competitive pricing, which hurt rev. EPS miss vs. our est. came from drop in gross margin, surprising lack of discipline in spending. gross margin was 21% vs. our 23% est., expenses 18% of rev. vs. Q3's 14%. co. sees '01 rev. growth just 3%, EPS of $1.44 vs. our $1.88. Cutting '01 est. to $1.32.. At 15X our conservative est., reasonably valued.

America Online (AOL ) and Time Warner (TWX ): Reiterate 3 STARS (hold)

Analysts: Scott Kessler and Thomas Graves

FCC approves merger. Companies have cleared last regulatory hurdle by unanimous vote. Deal's terms given ok by 3-2 margin. New provisions include: unaffiliated ISPs to be allowed to control content of customers' "first screen" and directly bill subscribers, Instant Messenger's anticipated high-speed video streaming services to be interoperable with platforms of at least 3 independent companies, TWX must dispose of interest in Time Warner Entertainment. Action is positive for AOL/TWX, but slowing U.S. economy warrants hold.

DoubleClick Inc (DCLK ): Reiterate 4 STARS (accumulate)

Analyst: Scott Kessler

Pro forma Q4 EPS less than $0.01 vs. loss of $0.02, above preannounced guidance. Revenues up 41%, down 2% from Q3, as technology segment (46% of revenues) results offset somewhat by weakness in media (46%). Int'l revenues (28%) quite healthy, especially technology unit in Asia. With difficult dot-com advertising environment and slowing global economy, now project 8% revenue growth in '01. But don't see '01 as bad as previously expected. With $0.02 Q1 EPS hit from investment in e-mail business, trimming '01 EPS est. $0.01 to $0.08. Longer-term, like DCLK.

NCR Corp. (NCR ): Downgrade to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Megan Graham-Hackett

Preannounces Q4 EPS shortfall. sees $1.00 vs. $1.15 Street mean and our est. Now expects revs. up 2%, vs. prior 5% guidance, our 4% est. Co. cites weak sales in retail store automation business, but segment should still post 14% revenue growth. Data warehousing had record revs. and orders, but mix hurt margins. For '01, co. only lowered retail automation rev. guidance. Still sees EPS of $2.80-$2.90. Cutting our '01 est. by $0.18 to $2.72. At 18X '01 est., with momentum in data warehousing and cash flow intact, okay to hold NCR.

Sensormatic Electronics (SRM ): Reiterate 4 STARS (accumulate)

Analyst: Jim Corridore

Pre-announces Q2 FY 01 rev. growth of about 4%, vs. our target of 10%. EPS expected to be $0.21 vs. street consensus of $0.25. Results hurt by weak Euro, pricing pressure in analog video and less then expected sales of source tags. Cutting FY 01 EPS est. to $0.95, from $1.03. However, with improved outlook for Euro, new video product intros. and less difficult comparisons in tags, second half should regain momentum. SRM doing good job improving operations and still attractive at 20 times FY 01 estimate, despite today's disappointment.

Inhale Therapeutic (INHL): Initiate coverage with 3 STARS (hold)

Analyst: Herman Saftlas

Co. is pioneer in development of inhalation devices used to deliver drugs via pulmonary system. See potential blockbuster status for inhaled insulin now under development with Pfizer, with FDA filing expected during 1st half. INHL also working on inhaled osteoporosis drug with Lilly, and inhaled Avonex for multiple sclerosis with Biogen. However, certain long-term safety issues have been raised on inhalation therapy. Also, it is not likely to work in smokers. INHL not expected to be profitable before '03 or '04.

SAFECO Corp. (SAFC): Downgraded to 1 STARS from 3 STARS (hold) Analyst: Catherine Seifert

Shares under pressure as SAFC sees $0.05-$0.10 Q4 operating loss. Continues all-too-often refrain from SAFC of higher claim costs, inadequate pricing, etc. SAFC also notes that customer it bonded has filed bankruptcy. However, most troubling co. statement is that personal auto results aren't responding to co.'s price actions.. Slashing our '00 operating EPS est. from $0.50 to $0.20, cutting '01 by $0.10 to $1.40. Stock has soared along with peers, but price is not sustainable if underlying claim trends continue to deteriorate. Target price $18-$20.

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