US Airways Lifted to Hold
US Airways (U ): Upgrades to 3 STARS (hold) from 1 STARS (sell)
Analyst: Richard Stice
With US Airways down 16% so far in 2001, shares are trading at a significant discount to the $60-per-share acquisition proposal by United Air Lines. The U.S. Justice Dept.'s ruling is expected in the coming weeks, although S&P views approval of the deal as unlikely because of competition concerns and lack of consumer and political support. S&P is maintaining its 2001 EPS estimate of $0.20. Over the next few months, US Airways should begin to benefit from the lower interest-rate environment, stable fuel prices and favorable weather conditions. On a stand-alone basis, shares now are fairly valued.
Ariba (ARBA ): Reiterates 3 STARS (hold)
Analyst: Scott Kessler
The software firm sees Q2 fiscal (Sept.) revenues at $90 million, down from its prior forecast of $169 million, and sees a loss-per-share of $0.20 vs. previous $0.04 EPS estimate. Ariba also will lay off some 700 workers, accounting for about a third of its workers. Also, Ariba and Agile Software have terminated their merger agreement because of the difficult economic and market conditions. Although the shortfall is blamed on the macroeconmic environment, S&P believes Ariba's problems are much more company-specific. S&P sees the company's failure to close the Agile deal as a major loss, but still sees value in Ariba's technology and solutions.
Broadvision Corp. (BVSN ): Maintains 3 STARS (hold)
Analyst: Scott Kessler
Broadvision sees Q1 revenues at $87 million, down from its prior forecast of $130 million, and sees a loss-per-share of $0.16 vs. its previous $0.02 EPS estimate. Broadvision also is firing some 325 employees, accounting for about 15% of its workforce. Also, the company is restating Q4 results to include some $4 million in additional expenses, which will reduce its EPS by a penny. S&P believes the shortfall is tied to the economic climate, as Q1 was greatly back-end loaded and some larger deals did not close. Broadvision is still a leader in the B2B e-commerce sector, and see shares likely to recover with the economy.
Rational Software (RATL ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)
Analyst: Jonathan Rudy
The software industry is under pressure as numerous companies pre-announced disappointing results Monday. While Rational was not one of them, the company remains vulnerable to continued cutbacks in IT spending, particularly in the telecom sector. S&P is lowering its fiscal 2002 EPS estimate to $0.84 from $0.88. However, given Rational's status as a key provider of technology infrastructure for the Internet economy, shares are still attractive at 20 times S&P's fiscal 2002 EPS estimate and three times sales.
Alcatel (ALA ): Reiterates 3 STARS (hold)
Analyst: Ari Bensinger
Amid the slower U.S. economy and resulting reduced telecom customer spending, French software firm Alcatel will cut 1,100 U.S. employees (under 5% of its U.S. workforce). The eliminations are concentrated in fiber optics and traditional phone equipment production. While Alcatel has less exposure to the U.S. market (23% of 2000 sales) than competitors, S&P believes spending weakness is starting to seep over internationally. Given poor spending trends, S&P is lowering its 2001 EPS estimate to 1.60 euros from 1.80 euros. But S&P thinks the increased risk of an EPS shortfall is largely reflected in Alcatel's depressed stock price.
Imclone Systems (IMCL ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)
Analyst: Frank DiLorenzo
The company announced a Q4 loss-per-share of $0.52, greater than estimates of a $0.05 loss, reflecting the timing of revenue recognition and higher R&D expenses. Imclone will record $24 million in revenue in Q1 on payments from Merck KgaA for R&D goals. Given the value of IMC-C225, and assuming approval of the drug and the rest of the drug candidate pipeline, Imclone is undervalued. But other first-tier biotechs also are attractive after a share-price correction. S&P sees an FDA filing by mid-2001 for IMC-C225, and sees approval by yearend. S&P is upping its estimated 2001 loss-per-share to $1.21 from $1.04, and raising the 2002 loss estimate to $.054 from $0.44. S&P sees EPS of $0.73 in 2003.