Still Hold Lockheed Martin

Also: analysts' opinions on Earthgrains Co. and OSCA; plus others

Lockheed Martin (LMT ): Maintains 3 STARS (hold)

Analyst: Robert Friedman

Due to justified investor skepticism about the satellite service industry, Lockheed Martin's small Telecommunications unit can't find funding for satellite-based Internet service infrastructure. Lockheed Martin's desire to enter the satellite service sector stems from a desire to cut proportional sales of its slow-growing, low-return weapons. But, S&P continues to believe the company won't be able to post sufficient returns to justify its expensive, high-risk push into the satellite service arena. Cash models indicate the company is trading at the highest end of the $28-$37 fair value range.

Earthgrains Company (EGR ): Initiates with 4 STARS (accumulate)

Analyst: Richard Joy

The second largest U.S. producer of bakery products is poised for rapid sales and earnings growth. Margins are benefiting from growth in super-premium bread products and acquisition synergies. The company is effectively managing higher energy and input costs through its improved pricing and mix. S&P expects new products to continue this trend. S&P sees fiscal 2002 (March) and fiscal 2003 EPS estimates of $1.58 and $1.80, respectively. Given the company's expected strong EPS and cash flow growth, shares are attractive at only 6 times the firm value to the estimated fiscal 2002 EBITDA.

OSCA (OSCA ): Maintains 5 STARS (buy)

Great Lakes Chemical (GLK ): Maintains 3 STARS (hold)

Analysts: Richard O'Reilly, Mark Basham

Great Lakes holders will get chance to exchange their shares for 7.9 million OSCA common B shares (56% interest) held by Great Lakes for a premium. The offer is not surprising, as Great Lakes had previously indicated OSCA no longer fit with the core chemical business. S&P had expected such a swap offer instead of a spin-off. For OSCA, the offer removes the overhang of potential dumping of Great Lakes-owned shares into thte market. For Great Lakes, OSCA is not that big a part of its overall business mix, so the divestiture doesn't warrant an opinion change.

Microsoft (MSFT ): Maintains 3 STARS (hold)

AOL Time Warner (AOL ): Maintains 5 STARS (buy)

Analysts: Jonathan Rudy, Scott Kessler

The Wall Street Journal reported Monday that talks of bundling AOL's browser into Microsoft's new operating system, Windows XP, broke down on Friday. Due to the complex partnership/competition between the two companies, S&P is not surprised by difficulties encountered in an attempt to reach an agreement. This could be a bargaining ploy by both sides as each would stand to benefit from such an agreement. However, S&P doesn't believe that a breakdown of the talks would impact either AOL or Microsoft dramatically.

Roadway Express (ROAD ): Maintains 3 STARS (hold)

Analyst: Richard Stice

Roadway Express sees tonnage levels 13% to 14% below the year-earlier levels, reflecting continued economic weakness. Operating ratio will deteriorate by 1.5%. To help offset the slowing economy, Roadway has implemented cost and capacity management controls. The less-than-truckload pricing environment remains stable, however, the mix has shifted to lower margin shipments. S&P is lowering its 2001 EPS estimate by $0.45 to $2.05. While the volume slowdown persists, S&P believes expense reductions will lessen the economic impact. With P/E-to-growth and price-to-EBITDA ratios in line with the peer average, S&P views shares as market performer.

Cypress Semiconductor (CY ): Maintains 2 STARS (avoid)

Analyst: Thomas Smith

The company lowered its Q2 2001 revenue guidance to $175-185 million, down from $200-210 million. Cypress sees EPS (before goodwill) breakeven to $0.02. Twin plagues of weak demand and high inventory hit Cypress's communication and networking markets. Recovery in the Computation segment faded. The wireless segment will be weak until Q4, and WAN will be week until 2002. Cypress is struggling to be profitable. The company is revising its $0.42 2001 estimate to $0.32, and cutting its $0.75 2002 estimate to $0.50. At two times the tangible book price, shares have priced in an EPS rebound that keeps being pushed out. S&P would wait for better demand conditions.

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