Downgrading Danaher to Sell

Also: analysts' opinions on Cox Radio and General Mills; plus more

Danaher (DHR ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Efraim Levy

Though the environmental equipment maker expects to report Q2 EPS of $0.63, in line with the Street's mean, S&P says Danaher is likely to miss analyst forecasts for the second half. S&P thinks Q2 revenues will rise to the mid-single digit percentage, but believes cost cutting may not be enough to offset lower volume and a poorer mix in the second half. S&P is reducing the 2001 EPS estimate by $0.21 to $2.37 and looks for 2002 EPS at $2.60. The company's balance sheet is healthy and cash flows are strong. But Danaher is unnattractive because its price-to-earnings multiple is at a premium to its growth rate, shares are priced at 21 times the estimated 2002 free cash flow, and there's limited near-term visibility.

Cox Radio (CXR ): Initiates with 3 STARS (hold)

Analyst: Howard Choe

Cox is the fourth largest U.S. radio broadcaster (by revenues), with about 83 stations located in major markets. Cox has No. 1 or No. 2 stations in 70% of its markets, and is a well-managed company with improving margin trends and a solid balance sheet. S&P expects revenue, EBITDA growth and margins to be in line with peers for 2001 -- flat to slightly higher. With shares approaching the 12-month high and in line with peers at 17 times S&P's estimated 2001 EBITDA of $1.57, S&P expects Cox to be a market performer.

General Mills (GIS ): Maintains 4 STARS (accumulate)

Analyst: Richard Joy

The cereal maker posted $0.43 vs. $0.39 May-quarter EPS before special items, as expected, and posted full-year 2001 (May) EPS of $2.20 vs. $2.00. May-quarter volume for the U.S. food group showed a strong 6% gain. Domestic growth benefited from a 6% gain for cereals and 11% growth for snacks/yogurt. The foodservice segment rose 7%, and international operations gained 13%. The Betty Crocker business is even with a year ago's results, while the Pillsbury acquisition now is expected to close by the end of August. With its enhanced growth profile and defensive appeal, General Mills' shares are attractive at 22 times S&P's fiscal 2002 (May) EPS estimate of $1.90, which includes the dilution from the Pillsbury deal.

Palm Inc. (PALM ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

Palm posted a Q4 operating loss of $0.16 vs. $0.03 EPS. The results met S&P's estimates but were a bit better than the Street's mean of a $0.19 loss. Revenue at $165 million was above the high end of Palm's twice-lowered guidance, and down 65% vs. Q3, but the negative gross margin was worse than S&P's estimate. The company exited Q4 with 10 weeks of inventory, which S&P says is better, but still high. Palm sees profit in Q2, but S&P believes the company could post a loss in Q3. Palm also sees net negative cash flow over the next two quarters. S&P now sees a loss of $0.07 vs. the prior estimate of a $0.21 loss. With a turnaround in financials early on, and with Palm's strong brand franchise, S&P recommends investors hold the shares.

Vitesse Semiconductor (VTSS ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Thomas Smith

The chipmaker warned that June quarter revenue was likely to run 50% lower sequentially, and the company now sees a pro forma $0.06 loss per share. Consensus had already dropped to pro forma EPS of $0.03. Chipmakers serving telcom equipment makers are suffering an awful spring and summer. S&P thinks the worst is mostly over for chipmakers, and thinks the disappointing news has been largely built into share prices. However, the industry's recovery could take many quarters. S&P is cutting its projection for fiscal 2001 (Sept.) EPS to $0.27 from $0.46, and is slashing the fiscal 2002 estimate to $0.20 from $0.53. The shares are trading at 5.7 times sales, which is a fair price for a chipmaker with the long-term potential to grow above the industry average.

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