Still Hold Intel
Intel Corp. (INTC ): Maintains 3 STARS (hold)
Analyst: Megan Graham-Hackett
Press reports say Intel's president and CEO Craig Barrett says he sees a PC rebound in the second half, echoing his statements earlier this week during his Asia tour, as well as his comments during the Q2 EPS conference call. But Barrett also says that consumption patterns are hard to predict with the U.S., Europe and Japan experiencing an economic slowdown. There's no new news here, as these comments largely reflect what's already known: inventories have cleared, but Barrett also notes that Intel doesn't have any visibility into end-user demand. Thus S&P sees a continuing price war with Advanced Micro Device. At a price-to-sales multiple of of six, S&P thinks Intel is rich versus its peers.
Computer Sciences (CSC ): Maintains 3 STARS (hold)
Analyst: Jonathan Rudy
The computer consulting company posted June-quarter EPS of $0.28 vs. $0.56, a penny above lowered guidance. Revenues rose 10%, including European revenues, which were up a strong 19%. Computer Sciences signed a solid $1.7 billion in new business during the June quarter. Global outsourcing business is up an impressive 27%, yet weakness continued for commercial consulting and systems integration services. S&P anticipates about 11% revenue growth in fiscal 2002 (March). However, S&P is lowering the fiscal 2002 EPS estimate to $2.10 from $2.25. With a significant NSA contract win, and with shares trading at 16 times the fiscal 2002 estimate, S&P thinks shares are worth holding.
Krispy Kreme (KKD ): Reiterate 1 STAR (sell)
Analyst: Kenneth Shea
The donut chain's stock is recovering a bit after a sharp decline over the past month. But at nearly five times S&P's estimated fiscal 2002 (January) revenue, 42 times EBITDA and 79 times EPS, S&P thinks the company remains overvalued versus both specialty retailer peers and the S&P 500 index. S&P still anticipates Krisy Kreme's good operating momentum to continue, with strong fiscal Q2 results on August 23 to be driven by mid-single digit systemwide comparable-sales growth and wider margins. S&P also believes there's a good chance that S&P's $0.39 EPS estimate for fiscal 2002 could be conservative. But S&P still believes torrid growth is unsustainable, and thinks valuation compression is inevitable. S&P's cash-flow analysis implies fair value at $20-$25.