Still Hold Agilent after Headcount, Spending Cuts

Also: analysts' opinions on Intel and BMC Software

Agilent Technologies (A ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

The company preannounced Q2 revenues of less than $2.9 billion, below Agilent's prior guidance of $3 billion but in line with S&P's estimates. Agilent cited a dramatic slowdown in orders due to the economic downturn and also announced a 10% employee pay cut, which is expected to save $70 million per quarter and last through July. The company also announced a hiring freeze, cuts in temporary workers/consultants and cuts in travel and discretionary spending. S&P is cutting its fiscal 2001 (Oct.) estimate to $1.45 from $1.65 on lower gross-margin assumption due to the dramatic order slowdown Agilent is seeing. At 21 times S&P's fiscal 2001 estimate, shares are fairly valued.

Intel Corp. (INTC ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

The Wall Street Journal reported Friday that the European Union is investigating Intel on allegations that the company abused its dominant position in the market for PC microprocessors. S&P notes that the Federal Trade Commission (FTC) had a similar anti-trust case and withdrew the case in 1999. As with the FTC's case, we believe the EU Commission will also likely close its investigation given Intel's stringent adherence to anti-trust policy and procedures within its organization. Meanwhile, Intel is cooperating with the EU Commission.

BMC Software (BMC ): Reiterates 3 STARS (hold)

Analyst: Jonathan Rudy

BMC stated that fiscal Q4 (March) revenues will be $412-$422 million, above S&P's estimate of $403 million. Q4 EPS will be $0.23-$0.25, versus consensus of $0.24. The company also announced cutbacks in 6% of its workforce, resulting in a Q2 charge of $14 million. S&P would not get too excited over this announcement. While revenue news is positive, earnings are simply in line. S&P believes the market is overly optimistic on sustainability of mainframe software demand, and would hold shares at current levels.

Extreme Networks (EXTR ): Reiterates 4 STARS (accumulate)

Analyst: Mark Basham

North American revenues are off 27%, about twice what S&P anticipated. Orders near the end of the quarter were pushed out as channels selling out of existing inventory. S&P believes final sales are not down as severely. Even so, there's little to suggest an inventory correction, or that the IT-spending slowdown will end quickly. S&P is further cutting the fiscal 2001 (June) revenue estimate by 12.5%. S&P also is reducing the fiscal 2001 EPS estimate (excluding one-time expenses) to $0.23 from $0.40 and cutting the fiscal 2002 EPS estimate to $0.50 from $0.58. Finally, S&P trimmed the 12-month price target to $27 from $33.

PacifiCare Health Systems (PHSY ): Maintains 3 STARS (hold)

Analyst: James Massey

At Friday's analyst meeting, PacifiCare reconfirmed the Q3 EPS guidance of $0.35 and sees full 2001 EPS at $2.94. S&P is keeping a more realistic full 2001 EPS estimate of $2.30. After a struggle in 2000, PacifiCare is aiming to stabilize operations by pruning Medicare enrollment and reducing marketing costs, refinancing its $735 million credit facility and slowing the transition to shared-risk provider agreements. Future goals include a rollout of a new Medicare supplement and PPO health plans, and expanded pharmacy-benefits operations. Shares are at a relative discount to HMO peers warranted by execution risks.

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