Still Hold Deere

Deere (DE ): Maintains 5 STARS (buy)

Analyst: Robert Friedman

In fiscal 2000 (Oct.), Deere's Homelite division, a maker of chainsaws, blowers and trimmers, lost $70 million on sales of $235 million. In the first nine months of fiscal 2001, the unit lost $30 million. Deere's remaining farm tractor, onstruction/forestry equipment, and lawn-tractor divisions are not big profit spinners, however, its mediocre businesses and weak fundamentals are already reflected in its stock price. As the Homelite division was never a huge Deere business, S&P is not changing its long-term cash EPS growth assumptions. Deere is trading near the mid-point of the $33-$55 fair value range.

USX-Marathon (MRO ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Tina Vital

Over the last five days, shares have risen 2.0%. September gasoline is up 13% as the market anticipates higher demand over Labor Day weekend. The impact has been compounded by supply concerns from such factors as unique local gasoline blends and limited pipeline capacity. Also, the Aug. 14 fire at a Citgo Petroleum refinery in Illinois limits capacity. With Midwest gasoline prices posed to climb higher, S&P says USX-Marathon -- a major Midwest player in both refining and marketing -- is set to benefit.

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

Analyst: Megan Graham Hackett

Press reports say that Palm plans to name David Nagel, the well-regarded AT&T chief technology officer, as president and CEO of Palm's software unit, replacing Alan Kessler. S&P views the appointment as positive, given Nagel's strong technology background and its role on Palm's board in an effort to create Palm's separate software subsidiary. In addition, S&P had been skeptical of Kessler's ability to execute Palm's software strategy, which is key to the company's profit potential going forward. With shares trading at a price-to-sales ratio of 1.6 -- below peers -- and given Palm's strong brand franchise, S&P says hold Palm.

American Water Works (AWK ): Maintains 3 STARS (hold)

Analyst: Stewart Scharf

Press reports say German utility group RWE AG plans a $3.6 billion offer for the company. RWE is seeking to expand into water services in U.S. and Europe, and also is eyeing Enron's Azuriz unit. But with shares trading at 2.4 times the price-to-sales ratio, and for debt-to-capital likely to rise to 60%-65% as it completes its acquisition of Citizens Utilities and finances deals and capital improvements with debt, S&P doesn't view American Water Works as the best fit for RWE. American Water Works shares are trading off their recent 52-week highs, now at 19 times S&P's $1.75 EPS estimate for 2001 and at a 10% discount to the $36.33 equivalent per share bid.

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