Less Red Ink for Xerox?

The copier giant says it will return to the black later this year, but S&P would still avoid the shares. Also: opinions on CSCO and AHC

Xerox (XRX ): Reiterate 2 STAR (avoid)

Analyst: James Corridore

The giant copier firm reported a Q4 loss of $0.31 from operations vs. $0.41 EPS, missing street consensus by two cents. Revenues fell 13%, worse than targeted. Margins also are down sharply for sales, service and rental and financing. On the positive side, Xerox increased its liquidity and aggressively cut costs, and the company is on target to achieve $1 billion in savings by the end of 2001. Xerox expects a return to profitability in the second half of the year and for 2001. Given the challenging imaging environment and economic slowdown, S&P thinks these goals may be tough to achieve, and that Xerox has many issues to tackle before it would be more optimistic.

Cisco Systems (CSCO ): Maintain 5 STAR (buy)

Analyst: Megan Graham-Hackett

Cisco's CEO John Chambers reiterated comments at the World Economic Summit that he made in early January that the quarter looks challenging due to the slowing U.S. service provider market, while the corporate market is holding up reasonably well. The new news is that Cisco for the first time stated that its long-term outlook for 30%-50% revenue growth appears conservative. S&P believes this reflects Cisco's ability to gain share during a downturn because of its diverse customer base and solid execution, as its less well-positioned peers suffer. S&P 's EPS model already reflects a difficult first half calendar 2001.

Amerada Hess (AHC ) Upgrade to 4 STAR (accumulate) from 3 STAR (hold)

Analyst: Tina Vital

S&P upgraded Amerada Hess to accumulate from hold after the gas and oil production company reported Q4 EPS $3.83 vs. $1.45, excluding special items, on 2.1% fewer shares, $0.86 above street consensus. Lofty oil and gas prices moved Amerada's earnings to the highest in the company's history. Its exploration & production division rose 34%, while its refining & marketing group climbed 192%. 2000 production gained 10%; 2001 production is expected to rise 7% and 2002 production is expected to gain 5%. E&P spending for 2001 is expected to rise 21% to $950 million. S&P raised Amerada's 2001 EPS estimate by $1.72 to $9.60 and raised its 2002 EPS to $7.50. Amerada's shares are trading at seven times S&P's 2001 EPS estimate - a discount compared to its peers.

DaimlerChrysler (DCX ): Reiterate 2 STAR (Avoid)

Analyst: Efraim Levy

Chrysler is expected to lay off about one-fifth of its workforce over the next three years, a move that will affect about 19,000 hourly workers and 6,800 salaried employees. The U.S. unit of the German automaker will cease operations at six plants through 2002, cutting about 15% of its manufacturing capacity. These measures are necessary, since the firm's capacity is above projected demand, and S&P expects the cuts to result in charges. DaimlerChrysler will disclose further initiatives on February 26. The automaker will suffer from rising competition in minivan and sport-utility segments amid lower overall industry sales.