EMC's Equation : Lower Revenues and Earnings

Also: opinions on Millenium Pharma, Enron, and others

EMC Corp (EMC ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: James Corridore

In light of the increased likelihood of a sustained downturn in tech spending, S&P feels EMC is vulnerable to further share price depreciation. Though the company has already adopted a "worst-case scenario", S&P feels that EMC could be forced to take 2001 revenue and EPS numbers down further. S&P is cutting its aggressive 2001 EPS estimate to $0.95 from $1.07. At 33 times that estimate, the stock still trades at a substantial premium to the broader market. Longer term, S&P still likes shares of this global storage leader, but the increased risk warrants more caution.

Millenium Pharmaceuticals (MLNM ): Maintains 3 STARS (hold)

Analyst: Herman Saftlas

Abbott Labs will buy $250 million of Millenium stock over the next two years under a new alliance to develop new diagnostics and drugs for obesity and diabetes. Both firms will contribute their metabolic R&D pipelines (35 projects) to a new partnership, which is expected to have two products in clinical trials by 2002. The deal reinforces Millenium's position as a partner of choice for big pharmaceutical and genomics collaborations. But S&P's enthusiasm is tempered by still unproven technology, expected losses over the next few years, Millenium's $6.2 billion market capitalization and volatility in the biotech sector.

Enron Corp. (ENE ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Ephraim Juskowicz

S&P downgraded Enron following the termination of a Blockbuster video-on-demand deal. Under the 20-year joint venture, Enron was to contribute fast-forward, pause, etc. and security technologies, while Blockbuster would pay a fixed fee to Enron for each accessed movie. The deal capitalized on Blockbuster's vast distribution network. Although this won't affect S&P's 2001 EPS estimate of $1.72, the move eliminates at least $7 a share of Enron's estimated discounted future cash flows. EPS may, however, be hurt if the Federal Energy Regulatory Commission requires more rebates by power wholesalers. At P/E-to-growth of 2.2 times, Enron is fairly valued.

eBay (EBAY ): Maintains 4 STARS (accumulate)

Analyst: Scott Kessler

The online auction company announced a broad e-commerce alliance with Microsoft. eBay's marketplace will be integrated into several of Microsoft's Internet properties including Carpoint, bCentral and WebTV. Microsoft's NET will extend eBay's application program interface (API), which will be offered as an XML-based online service. eBay will also deploy Microsoft's Windows 2000 Server and Passport technologies. The deal is positive for eBay, whose shares have plummeted over the last 10 trading days. The alliance underscores the potential for extending eBay's platforms and licensing its API. S&P sees eBay as mostly insulated from the economic slowdown.

Andrew Corp. (ANDW ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Ari Bensinger

Andrew sees Q2 fiscal 2001 (Sept.) sales at $225-$240 million, with EPS $0.08-$0.12, below S&P's estimates of $267 million and $0.21 EPS. The lowered guidance reflects lower U.S. telecom equipment spending. Andrew still sees strong order and sales growth in Latin America, Europe, and Asia. The wireless provider is is cautiously optimistic about the second half of fiscal 2001, and expects higher quarterly profits year to year. S&P is putting its estimates under review. While S&P is concerned with the near-term impact of the slower U.S. economy, the long-term growth outlook for the wireless networks market remains solid.

American General (AGC ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Catherine Seifert

Shares opened higher amid reports that U.K.-based Prudential PLC has offered to acquire AGC for about $26.5 billion or $49.52/share. S&P will update when more information becomes available. S&P recommends conservative investors tender shares, but it still likes American General on a stand-alone basis if this deal is not consummated.

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