Keeping Accumulate on Children's Place
Children's Place: (PLCE ) Maintaining 4 STARS (accumulate)
Analyst: Mark Basham
Basham is cutting his estimates further on Children's Place to reflect a probable prolonged consumer pullback. He thinks this more accurately reflects the growing possibility of ongoing U.S. military activity the for foreseeable future, and is more in line with S&P's recession forecast. Basham is reducing his fiscal 2002 (Jan.) EPS estimate from $1.60, to $1.35, and his fiscal 2003 pojection from $2.00, to $1.85. Despite a more subdued outlook for the children's apparel retailer, Basham believes the stock, trading at 10 times the fiscal 2003 estimate, is attractive for long-term appreciation.
Clear Channel Communications: (CCU ) Maintaining 3 STARS (hold)
Analyst: Howard Choe
The communications company will buy Ackerly Group Inc., a smaller diversified broadcaster, for about $800 million (including assumed debt) in a stock deal -- 0.35 Clear Channel share for each Ackerly Group share. The price is about four times estimated 2001 sales, slightly below the current peer average for non-Hispanic broadcasters. The deal will almost double Clear Channel's TV assets, and Ackerly's advertising unit will strengthen its outdoor presence in Boston, Seattle, and Portland -- all top-25 markets. Overall, Choe sees the deal as a good acquisition made at an opportune time, bolstering Clear Channel's leadership position in cross-platform advertising. However, the weak advertising outlook prompts him to maintain its hold rating on the shares.
Northrop Grumman: (NOC ) Maintaining 3 STARS (hold)
Analyst: Robert Friedman
Friedman reiterates a hold rating on shares of the defense company, despite plans by Newport News to consider Northrop's 75% stock/25% cash bid. After Northrop's recent price spurt, Northrop's bid now is worth $73 a share, versus rival shipbuilder General Dynamics' offer of $67.50 cash per share. Friedman believes General Dynamics still has the edge. But even if Northrop wins the bid, he thinks its victory will be muted. Shipbuilding generates low returns, mostly becasue of 50% overcapacity in the industry and high capital expenditure requirements. Plus, as General Dynamics is bigger and better-managed, the analyst believes Northrop's interest in Newport News is mostly defensive. Northrop Grumman is trading at a rich multiple, versus sustainable cash earnings per share growth and a lackluster return on equity.
Enron: (ENE ) Upgrading to 4 STARS (accumulate)
Analyst: John Kartsonas
Kartsonas upgraded his investment rating on the energy merchant to accumulate from hold. Enron is selling its Portland General Electric utility business to Northwest Natural Gas for total consideration of $1.9 billion. The price includes $1.55 billion cash, $250 million in common and preferred stock, and $75 million in assumption of customer obligation benefits. The deal is expected to close by the fourth quarter in 2002. Lower commodity prices, the weak economy, and the sudden departure of its CEO have driven Enron shares 65% off their highs. However, with new management focusing on core businesses, and more transparency in operations, Karsonas sees the stock, now at 15 times his 2002 EPS estimate of $2.18, outperforming over the longer term.