Keeping 'Hold' on Tyson and IBP

Also: opinions on Williams Cos. and Sealed Air

IBP Inc. (IBP ) and Tyson Foods: Reiterates 3 STARS(hold)

Analyst: Phillip Seligman

On Thursday, Tyson ended a $3.2 billion deal to acquire IBP, citing misleading information in its decision to enter the deal, as IBP subsequently restated its financials to address SEC issues with accounting misstatements. The news opens the door for a Smithfield Food bid for IBP, though that deal could face heavy antitrust scrutiny. Smithfield is reportedly interested. If so, S&P expects its bid to be much lower than Tyson's bid, or thinks IBP management could instead offer a buyout. S&P sees IBP fairly valued at eight times its 2001 EPS guidance of $1.93. Tyson is trading at 13 times S&P's fiscal 2002 (Sept.) EPS estimate of $1.00.

Williams Cos. (WMB ): Maintains 4 STARS (accumulate)

Analyst: Ephraim Juskowicz

After some 9 months of deliberation, the board formally approved a spinoff of 86%-owned Williams Communications to Williams' shareholders in the form of a tax-free dividend. Shareholders will get about 0.82 of the unit's share per Williams share owned. The move was widely expected. Stripping out market value of the unit's stake, the energy-only Williams component is attractive at a P/E-to-growth multiple of 1.1. S&P is assigning the peer group's average P/E-to-growth to 1.4 times its estimate, making Williams worth $50.

Sealed Air (SEE ): Reiterates 3 STARS (hold)

Analyst: Stewart Scharf

The specialty-packaging materials company posted $0.35-$0.40 Q1 EPS, vs. the Street's $0.48, as a disruption in Europe's meat supply because of foot-and-mouth disease hurt food-packaging sales. The soft economy, and higher material and energy costs, also affected results. Q1 sales are virtually unchanged from a year ago. Weak markets are likely to continue for much of 2001. Case-ready offerings are still strong, and the company is developing new products. S&P is cutting its 2001 estimate by $0.35 to $1.85, and trimming the fiscal 2002 estimate by $0.20 to $2.30. With unstable economic conditions, S&P views the stock as market performer.

Micron Technology (MU ): Maintain 3 STARS (hold)

Analyst: Thomas Smith

The memory-chip provider posted a Q2 fiscal 2001 (Aug.) loss of $0.01 (before $0.14 charges related to PC subsidiary Micron Electronics' switch to web hosting business), vs. $0.30 EPS. The results beat the recently lowered Street estimate of a $0.03 loss. Core semiconductor operations revenue is down 33% quarter over quarter. Margins are narrow. DRAM prices are steadying at low levels. On the bright side, memory-chip inventory levels are normalizing and competitors are leaving the sector. S&P is reducing its fiscal 2001 (Aug.) EPS estimate to $0.70 from $0.85; and cutting the fiscal 2002 estimate to $1.75 from $1.90. S&P sees the stock in an industry-wide malaise for most of 2001.

Calpine Corp. (CPN ): reiterate 5 STARS (buy)

Analyst: Craig Shere

Calpine said at an annual conference that it sees a very close relationship between its generation capacity growth and future EPS growth. The company also said that it's "enabled" by an accretive impact of equity gas acquisitions and contributions from power marketing operations. Given S&P's view that Calpine can achieve about 60% compound annual growth in megawatts of generation through mid-decade, EPS growth prospects are very strong. S&P is raising its 2001 estimate by $0.30 to $1.80 on increased confidence in Calpine's construction program. Strengthening fundamentals warrant premium valuation.

Plexus (PLXS ): Maintains 3 STARS (hold)

Analyst: James Corridore

S&P cut the EPS estimate for the March quarter to $0.26-$0.28, vs. the current Street consensus of $0.34, on lower than expected revenues. Plexus also guided down for the June quarter, expecting EPS of $0.20-$0.24, vs. S&P's $0.41 target. The company cites a slowdown in networking and datacommunications, and says it is evaluating a restructuring charge. The news is not at all surprising given the current environment. S&P still expects strong, long-term demand for outsourced manufacturing services. Despite the bad news, S&P would hold shares for an eventual recovery in technology spending.

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