Still Hold McDonald's

While earnings have been hurt by beef safety fears, Mickey D's is expanding abroad and buying back shares. Plus: opinions on Corning and Raytheon

McDonald's (MCD ): Reiterate 3 STARS (hold)

Analyst: Karen Sack

The fast-food franchiser posted $0.34 vs. $0.35 Q4 EPS on 4.7% fewer shares outstanding. The results were below Street expectations. Sales fell 10%, with European operations hurt by concerns about beef supply. Operating income fell 17%, hurt by a 58% drop in Latin America from weak economies there. McDonald's full 2000 EPS rose 5% to $1.46. Boston Chicken, Chipotle's and Donato's units together posted a $15 million 2000 operating loss. The company is focusing in 2001 on international expansion and on 150 new Donato's and 104 new Chipotle's, and sees 10%-13% growth in EPS in 2001. McDonald's is also using ample cash flow to buy back shares.

Corning (GLW ): Reiterate 4 STARS (accumulate)

Analyst: Ari Bensinger

The fiber-optic concern posted Q4 EPS of $0.34 vs. $0.18, which is $0.06 above mean estimates. A higher EPS reflects an extremely strong gross margin. Demand for premium LEAF fiber more than doubled; liquid crystal display sales increased 90%; and photonic sales rose 25% sequentially. Corning saw its first significant fiber shipment for metro area networks. The firm expects increased order lumpiness during the first half of 2001. Given uncertain capital spending and weaker LCD retail environment, Corning prudently widened its Q1 EPS guidance to $0.28-$0.31 from $0.29-$0.30 and will update the figures after a conference call Friday, Jan. 26.

Raytheon Co. B (RTN.B ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Robert Friedman

The world's largest military electronics producer and leading business jet maker posted a 2000 operating EPS slip of 1% to $1.46 and a low normalized return on equity of 4.4%. S&P believes Raytheon's B shares recovered from a disastrous 1999 but are still struggling with 100% debt/equity levels, mediocre operating margins and product delays. The firm's earnings quality is fair at best. About $0.44, or 30%, of Raytheon's 2000 operating EPS came from non-operating pension income and restructure charge reversals. S&P's revised model indicates that the shares are fairly valued.

Exxon Mobil (XOM ) Reiterate 5 STARS (buy)

Analyst: Tina Vital

The oil firm reported Q4 EPS $1.46 vs. $0.77 (excluding merger effects), $0.15 above Street's estimates. Exxon raised the bar again, posting its most profitable quarter ever. The upside reflects higher oil and gas prices and cost cuts. Exploration & production earnings were up 63%; refining & marketing rose to $1.2 billion vs. a $19 million loss; chemicals fell 45%. The company expects 2001 E&P spending to rise 15%-20%. Liquids production is up 1%, while gas is down 4%. Exxon sees 2001 EPS at $4.79, and 2002 EPS at $5.00. Although shares are trading at 17 times S&P 's 2001 EPS estimate, Exxon's "top of [the] class" performance shows premium valuation is deserved.

Kellogg Co. (K ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Richard Joy

The cereal manufacturer reported Q4 EPS before special items $0.35 vs. $0.34, as expected. Kellogg's full year EPS was $1.61 vs. $1.50. Increased marketing, inventory reduction, international restructuring, high fuel costs and the Keebler Foods (KBL ) integration will make the next two quarters difficult. Kellogg sees an early March close for the Keebler acquisition. S&P views the deal as positive, but thinks problems will continue in Kellog's core cereals segment. The Keebler acquisition is expected to dilute reported earnings through 2003. S&P believes Kellogg's shares will underperform near-term, given its integration challenges and lack of earnings growth and visibility.

U.S. Steel Group (X ): Reiterates 2 STARS (avoid)

Analyst: Leo Larkin

The nation's largest steel manufacturer posted a Q4 loss per share of $0.67 EPS before special items vs. $0.35, on a 5.8% revenue decline. U.S. Steel results were "way off" the Street's consensus of an $0.21 loss. U.S. Steel posted a full-year loss of $0.33 EPS vs. $0.40 EPS. The loss for Q4 and full year reflect a weaker end market, bloated distributor inventories and high imports. U.S. Steel says Q1 volume will exceed Q4 but prices will still be depressed. The company also notes that pension credits will drop by about 38% in 2001. S&P reduced its 2001 estimate to a loss of $0.70 from $1.55 EPS to reflect reduced pension credit, higher interest costs and a lower operating rate.

    Before it's here, it's on the Bloomberg Terminal.