Still Hold Compaq Computer

Also: analysts' opinions on Mercury Interactive and Constellation Brands

Compaq Computer (CPQ ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

The company preannounced a Q3 loss of $0.05-$0.07 vs. the Street's mean EPS of $0.05. Compaq sees revenue of $7.4-$7.5 million, down 12% vs.Q2, and 8% below S&P's estimates. The company cited several factors: the weak economy, and shipment disruptions due to the terrorist attacks and a typhoon. Still, high-end server and services business held up surprisingly well. Due to stiff pricing in PCs and low-end servers, gross margin is seen 200 basis points lower vs. Q2. While execution risks remain high with the proposed acquisition by Hewlett-Packard, at 0.3 times sales, S&P believes risks are discounted in shares.

Mercury Interactive (MERQ ): Maintains 5 STARS (buy)

Analyst: Mark Basham

Mercury announced preliminary Q3 results in line with S&P's reduced expectations following Sept. 11. Mecury expects revenues of $82-$84 million in line with S&P's lowered $84 million estimate. The company also sees pro forma EPS of $0.10 to $0.12, compared to S&P's trimmed $0.10 forecast. No surprise in these numbers.

Constellation Brands (STZ ): Maintains 5 STARS (buy)

Analyst: Richard Joy

The company posted August-quarter EPS of $0.82 vs. $0.70, as expected. Net sales rose 16%, as a negative foreign exchange impact tempered strong organic growth and acquisitions.Excluding currency, sales rose 18%. Operating margin gained an impressive 90 basis points, reflecting lower grape costs and mix improvements. S&P is keeping the fiscal 2002 (Feb.) EPS estimate at $3.06, and sees fiscal 2003 at $3.55 before a benefit of new goodwill accounting rules. Shares are undervalued at only 12 times S&P's fiscal 2003 estimate, a discount to S&P MidCap index, comparable to peers and an expected EPS growth rate in excess of 16%.

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