Still Avoid Circuit City on Weak Sales

Also: analysts' opinions on Washington Mutual and American Express; plus others

Circuit City Stores (CC ): Maintains 2 STARS (avoid)

Analyst: Thomas Graves

The consumer-electronics chain posted Q4 EPS of $0.49 vs. $0.78, a few cents above estimates. S&P is keeping its fiscal 2001 (Feb.) estimate at $0.80 (heavily weighted toward Q4) including $0.60 from the consumer-electronics business and $0.20 from CarMax. S&P thinks a recent price drop and a report that CarMax will acquire a 5.9% stake in Circuit City somewhat eases the downside risk of Circuit City's stock. Also, the long-term picture for a shift to digital products should be favorable. But, the prospect of weak comparable-store sales from the consumer-electronic business over the next couple of quarters and the risk of fiscal 2002 Q4 disappointment keeps S&P generally negative on the stock.

Washington Mutual (WM ): Reiterates 4 STARS (accumulate) and FleetBoston Financial (FBF ): Reiterates 5 STARS (buy)

Analyst: Erik Eisenstein, Stephen Biggar

S&P would view a deal for Washington Mutual to buy FleetBoston's loan unit as mildly positive for Washington Mutual, which will pay only 1.1 times the book value for a unit that would make it second only to Wells Fargo in mortgage servicing. The deal, first reported in The Wall Street Journal on Monday, would expand Washington Mutual's presence in the Northeast. S&P sees the deal aiding FleetBoston, which lacked the scale to achieve adequate returns in the mortgage business.

American Express (AXP ): Reiterates 4 STARS (accumulate)

Analyst: Michael Schneider

American Express expects Q1 2001 EPS to be 18% below last year's $0.48, due to an $185 million loss relating to the write-down and sale of high-yield securities held in investment portfolios. Other negatives include weak equity markets and an apparent weakness in worldwide billed business. S&P is putting the 2001 EPS estimate under review, and sees $0.39 in Q1 2001. Despite the bad news, the leading financial-services firm is well positioned to rebound when the economy and capital markets get back on track.

i2 Technologies (ITWO ): Reiterates 3 STARS (hold) Analysts: Jonathan Rudy

The software provider will have EPS (pro forma) of $0.02, below consensus estimates of $0.05. i2's Q1 license and total revenues will be $210 million and $355 million, slightly below S&P's estimates of $221 million and $360 million, respectively. The company cited delayed purchasing decisions due to uncertainties over the economy. S&P is lowering its 2001 EPS estimate to $0.27 from $0.37, but continues to have a favorable opinion of i2's long-term outlook. Still, the company's 2001 P/E is more than 50 times S&P's estimate and therefore, S&P would not add to positions at this time.

Benchmark Electronics (BHE ): Maintains 2 STARS (avoid) Analyst: James Corridore

Due to the technology slowdown, the electronics manufacturing and services provider lowered its revenue and EPS forecasts. Benchmark now expects Q1 revenues of $440-$445 million, and sees $0.30-$0.32 EPS vs. S&P's $475 million revenue and $0.37 EPS target. For Q2, Benchmark forecasts $400-$420 million in revenues and $0.16-$0.20 EPS, a steeper revision vs. S&P's $489 million estimate and $0.31 EPS target. Benchmark also will take a $4-6 million restructuring charge. In this harsh climate, S&P thinks smaller players will have a more difficult time due to less leverage with suppliers and a less favorable relationship with leading OEMs. S&P expects a tough environment to persist for at least two or three more quarters.

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