Hold Corning as Demand Falls

Corning (GLW ): Maintains 3 STARS (hold)

Analyst: Ari Bensinger

Communication-service providers are focusing on utilizing current networks vs. adding more capacity. Optical system makers continue to reduce inventories. High-margin premium fiber demand will be lower than anticipated. Given these factors and a recent warning from Nortel Networks (estimated 12% of Corning sales), S&P is lowering its 2001 EPS estimate to $1.14 from $1.30, below the company's guidance of $1.20-$1.30. Still, the long-term picture is bright, as next-generation fiber creates significant cost savings with relatively small investment. Even with S&P's lowered estimate, shares are trading under its long-term 25% growth rate.

Bristol-Myers Squibb (BMY ): Reiterates 3 STARS (hold)

Analyst: Herman Saftlas

U.S. sales of Bristol Myer's anti-anxiety drug BuSpar were $677 million last year. The FDA gave Mylan Laboratories (MYL ) 180-day marketing exclusivity deal for the 15-milligram dose of generic versions of BuSpar, and gave Watson Pharmaceuticals (WPI ) 180-day exclusivity for five-milligram and 10-milligram doses. Adjusting for approvals, S&P is lowering its 2001 estimate for Bristol-Myers by $0.03 to $2.39. S&P is raising Watson's 2001 estimate by $0.10 to $2.32, and boosting Mylan's fiscal 2002 (March) estimate by $0.08 to $1.30. S&P views Bristol-Myers, Mylan and Waston all as adequately valued at present levels.

Delphi Automotive (DPH ): Reiterates 2 STARS (avoid)

Analyst: Efraim Levy

Delphi will take a $400 million aftertax charge to close plants and reduce payroll. The news is not surprising, given the weekly plant shutdowns amid erratic automobile production schedules. But the extent of the profit reduction is disappointing, as Delphi now sees a possible Q1 loss on $6.4-$6.6 billion sales, vs. S&P's forecast of $6.7 billion and $0.18 EPS. Volume and mix were negatives, but restructuring will help margins. S&P is lowering its $1.30 EPS estimate for full-year 2001 to $0.87 from $1.30, but earnings visibility is low.

Biochem Pharmaceutical (BCHE ): Maintains 3 STARS (hold)

Analyst: Frank DiLorenzo

The pending merger with U.K-based Shire Pharmaceuticals is seemingly uncertain, since Canada's Minister of Industry apparently isn't satisfied that the proposed merger is of net benefit to Canada. S&P thought the merger would benefit Biochem shareholders. In light of the current status of this merger, S&P believes Biochem shares are fully valued, especially in relation to the market capitalization of several biotechs that S&P thinks have clearly superior prospects.

JNI Corp. (JNIC ): Maintains 3 STARS (hold)

Analyst: James Corridore

S&P initiated coverage Wednesday, saying that JNI's current valuation allows for holding the stock even if the company preannounced, which it did Wednesday night. JNI expects Q1 EPS of $0.03-$0.04, vs. the current Street consensus of $0.15, on a 9%-12% revenue rise. The shortfall is based on weakness in Sun Solaris server sales, where JNI derives a large part of its revenues. The company is on track to launch a new non-Sun product, bringing more diversity to its mix. S&P is cutting the EPS target to $0.35 from $0.75. JNI's after-hours price is about 23 times S&P's new estimate.

Cabletron Systems (CS ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

Cabletron posted Q4 EPS $0.06 (pro-forma ) vs. a $0.12 loss, above the Street mean of $0.05 and higher than S&P's $0.03 estimate. Revenue is up 10% vs. Q3 to $291 million, above S&P's estimate. Revenue is led by strength in Riverstone (metro area networks), Aprisma (software) and Enterasys (enterprise gear). On a pro-forma basis, gross margin is up 30 basis points vs. Q3 at 52.7%. Cabletron sees Q1 revenue up to $305-$307 million, and sees an EPS of $0.08. S&P is keeping its $0.05 estimate as we see a risk in Cabletron's challenging market environment. S&P also is keeping the below-consensus $0.24 fiscal 2002 (Feb.) estimate. While results are solid in light of peers' trouble, S&P ranks 'hold,' as shares are trading at 46 times S&P's estimate.

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