Lowe's Is Cooling Down

S&P thinks a retreat in consumer spending will continue to hurt sales for the home-improvement supplier. Also featured: Royal Dutch and Shell Transport, and QLT

Lowe's Cos.(LOW ): Reiterates 2 STARS (avoid)

Analyst: Maureen Carini

We are trimming our fiscal 2001 (Jan.) EPS estimate by $0.04 to $2.10 as the building-commodities seller further reduced its earnings guidance for the year. The company says same-store sales for Q4 are likely to decline about 3%. Margins will be hurt by higher than anticipated promotional pricing in the holiday season. Despite recent interest rate cuts, we believe that sluggish consumer spending will continue to temper Lowe's growth rate for fiscal 2002 (Jan.). We are cutting our fiscal 2002 EPS estimate by $0.10 to $2.45.

Royal Dutch Petroleum (RD ) and Shell Transport & Trading (SC ): Reiterates 3 STARS (hold)

Analyst: Tina Vital

Royal Dutch/Shell posted Q4 adjusted current cost-of-supplies earnings of $3.6 billion vs. $2.2 billion, in line with the Street. The results reflected higher oil and gas prices. Exploration and production segment income rose 52%; gas and power climbed 339%; oil products were up 230% but chemicals fell 77%. Oil production was flat, while gas rose 2%. Shell's two parents, Royal Dutch and Shell Transport, said they would buy back shares, and we expect 2001 buybacks of 0.5%-3% of total shares. At around 16 times our 2001 EPS estimate, the companies are in line with its peers, and are fairly valued.

QLT Inc. (QLT ): Maintains 4 STARS (accumulate)

Analyst: Frank DiLorenzo

The pharmaceutical concern announced Q4 Visudyne sales of $38 million, in line with prior guidance, with EPS of $0.03,a penny below our estimate. QLT's recent positive Phase III data should aid in label expansion for Visudyne, and we expect labeling for pathological myopia to occur by mid-year. We feel this is an important indication with a clearly defined patient population in need of vision treatment. We consider QLT as "attractive" on Visudyne alone, a treatment that we believe has a peak sales potential of over $500 million. We are lowering our 2001 EPS estimate to $0.33 from $0.52 to reflect higher than expected costs, and we see 2002 EPS at $0.64.

HealthSouth (HRC )Maintains: 5 STARS (buy)


The healthcare service provider agreed to sell its occupational medicine division for undisclosed terms to U.S. HealthWorks. The unit operates 122 centers in 29 states, with revenues bundled into its outpatient rehabilitation segment. The unit generates an estimated 3% of total revenues, and feeds some physician referrals to the rehabilitation division. Earlier, HealthSouth agreed to sell a 200-bed acute care hospital to HCA-The Healthcare Co. The moves indicate an effort to further refocus on core rehabilitation and surgery franchises. The stock remains among our top healthcare services picks.

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