Keeping Hold on Xerox

Also: analysts' opinions on Heinz, BellSouth and other stocks

Xerox (XRX ): Maintains 3 STARS (hold)

Analyst: James Corridore

The copier giant will exit the small office/home office market by discontinuing personal inkjet printer and copier lines distributed through retail channels. S&P believes the decision reflects a severe market share loss and inability to compete with inkjet leader Hewlett-Packard. Xerox will liquidate segment inventory through existing channels, but this will likely occur only with price cuts and a possible inventory charge. However, the news does indicate that Xerox is serious about cost cutting and refocusing. The company sees a Q2 loss from its terminated sector about equal to the $82 million it lost there in Q1.

BellSouth Corp. (BLS ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Craig Shere

Over the coming 12 months, upside catalysts include potential IPOs for Cingular Wireless (40% owned joint venture with SBC Communications) and Latin American wireless investments, and the company's receiving an okay for offering long distance in its local service territory. The share price is within the three-year trading range, and is depressed by short-term issues, including foreign exchange losses, a dilution from DSL investments and the weak U.S. economy. But at under 16 times S&P's 2002 EPS estimate of $2.55, the price-to-earnings (p-e) ratio is at a near three-year low. Assuming a 9%+ long-term growth rate, BellSouth's ratio of p-e to growth is about 25% below market.

H.J. Heinz (HNZ ): Maintains 3 STARS (hold)

Analyst: Richard Joy

Before special items, Heinz posted April-quarter EPS of $0.53 vs. $0.63, in line with expectations. Full fiscal 2001 (April) EPS were $2.55 vs. $2.52. April-quarter sales rose 4% as higher volumes and acquisitions outweighed adverse currency translations. Heinz took a special $299 million charge for tuna/pet food streamlining steps, and expects $60 million in annual cost savings by fiscal 2004. April-quarter results were impacted by tuna weakness, energy costs and inventory reductions. S&P is reducing its fiscal 2002 EPS estimate by $0.05 to $2.70. At 15.6 times that estimate, S&P views shares as fairly valued at a discount to large-cap food peers.

CNF Inc. (CNF ): Maintains 3 STARS (hold)

Analyst: Richard Stice

CNF sees EPS of $0.15-$0.20 (before a charge), below the Street's estimate of $0.30. Volumes at its Emery Worldwide unit are down 30% on continued economic weakness. To cope with the slowdown, Emery has cut 900 jobs, about 11% of its workforce, and plans to use fewer aircraft. CNF will take a Q2 restructuring charge of $170-$200 million for underutilization and asset disposal. S&P is lowering its 2001 EPS estimate by $0.25, to $1.60. Given the uncertain near-term economic outlook, S&P would be reluctant to add to positions.

Enzo Biochemical (ENZ ): Maintains 3 STARS (hold)

Analyst: Frank DiLorenzo

April-quarter revenue was $15.2 million -- $900,000 ahead of S&P's view. EPS met S&P's $0.07 estimate. Enzo continues to show strength in its life-sciences products, with April-quarter segment sales up 29%. The company is making clinical progress on treatments for HIV and hepatitis and the start of human trials for inflammatory bowel disease is likely in the second half of 2001. S&P sees revenues of $59 million in fiscal 2001 (July), and sees $68 million in fiscal 2002, and $78 million in fiscal 2003. S&P estimates the EPS at $0.29 for fiscal 2001, $0.41 for fiscal 2002, and $0.50 for fiscal 2003. Based on the valuation relative to S&P's biotech group, S&P thinks the shares are reasonably priced.

STMicroelectronics (STM ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

The company sees Q2 revenue of $1.55-$1.6 billion, down roughly 18% from Q1 and 16% from a year ago. This is below the prior guidance of $1.65-$1.8 billion and below S&P's $1.7 billion estimate. Gross margin are seen at 38%, about 300 basis points below S&P's estimate and vs. Q1's 44.5%. The company cited weakness for chips in telecom and computer peripherals. Also, memory demand was down from Q1, and pricing pressure was higher. The preannouncement was not a surprise, especially given the company's exposure to Nokia.

Before it's here, it's on the Bloomberg Terminal.