Keeping Hold on Computer Associates

Also: analysts' opinions on Tyson Foods and Extreme Networks; plus others

Computer Associates (CA ): Reiterates 3 STARS (hold)

Analyst: James Rudy

Computer Associates rebutted Sunday's New York Times article questioning the company's new business model. The article looked solely at reported revenue numbers while ignoring residual revenues, which are contractual commitments. The company currently has $1.3 billion in residual value. The article's concerns over maintenance revenue ignore the changing business mix. While S&P believes that there is confusion over the new business model, Computer Associates' accounting appears to be more conservative, not less. However, S&P would not add to positions in this competitive economic environment.

Tyson Foods (TSN ): Maintains 3 STARS (hold)

Analyst: Philip Seligman

Tyson posted EPS of $0.01 vs. $0.16, excluding $0.04 in one-time items -- $0.02 below the Street's expectations. Sales were up 2.0% and gross margin was 11.8% vs. 16.6%. Tyson cited winter weather, low prices for breast meat, and higher grain and energy costs that were partly offset by product mix changes. The company sees $0.06-$0.10 Q3 EPS, with stronger markets, improving costs and seasonal volume increases. S&P views the company's plan to improve its product mix with more value-added products as long-term positive. S&P is cutting the fiscal 2001 (Sept.) EPS estimate $0.12 to $0.32, and sees fiscal 2002 EPS of $1.00. Tyson is fully valued at 44 times the fiscal 2001 estimate.

Extreme Networks (EXTR ) and Mercury Interactive (MERQ ): Downgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Mark Basham

Both stocks rallied sharply during the April Nasdaq surge. Extreme is up 174%, and Mercury is up 107% since their April 4 lows. Extreme is well above S&P's $27 6-12 month target price and Mercury also is above S&P's $59 price goal. While the Nasdaq rally may extend further in the short term on hopes for more rate cuts, there's a quick bottom for IT spending, and S&P wouldn't be buyers of Extreme and Mercury at these levels.

AES Corp. (AES ): Downgraded to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Craig Shere

AES reported Q1 operating earnings per share (excluding currency losses) of $0.42 vs. $0.38 one year earlier, above expectations. Given AES's size and diverse businesses, major operating surprises (up or down) are unlikely. By 2005, EPS should be $4.46 to $5.42, with the shares trading at $89 to $108 (given a p-e of 20). Discounting back four years at 15%, the low end of the range yields just a $51 target. While the discount rate may be high and ending P/E low, a conservative approach is in order given macro risks for AES's significant Latin American investments stemming from Argentina's economic and currency turmoil.

Murphy Oil (MUR ): Downgraded to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Tina Vital

Murphy reported Q1 earnings per share of $2.16 vs. $1.09 one year earlier, excluding special items and as restated, $0.01 above the Street consensus forecast. Exploration & production (E&P) income was up 58% on higher North American natural gas prices; refining & marketing was up 308% on wider margins. E&P spending was up 42% from Q4; production, as measured in barrels of oil equivalent (BOE), was up 3.2% from Q4. S&P sees 2001 EPS at $8.46, 2002 at $6.24. With sequential earnings growth expected to be about flat for the rest of 2001, the shares are trading at 10 times the 2001 EPS estimate -- a premium to its peers. As such, they merit a hold recommendation.

Pride Petroleum (PDE ): Maintains 4 STARS (accumulate)

Analyst: Tina Vital

Pride announced Q1 EPS $0.16 vs. loss of $0.11 one year earlier, in line with Street, on 33% more shares outstanding. Operating income rose 91%, as margins widened, reflecting a Gulf of Mexico utilization rate of 99% vs. 67% in Q1 of 2000, dayrates of $36,400 vs. $22,000. International benefited from higher rates, as well as additions of one drillship and two jackups in 2000 and one semisubmersible in Q1 of 2001. See '01 EPS at $1.35, '02 at $2.75... With international markets rebounding, the shares are trading at 19 times S&P's 2001 EPS estimate, at a discount to its peers -- thus, S&P's accumulate rating.

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