Still Hold Honeywell
Honeywell (HON ): Maintains 3 STARS (hold)
Analyst: Robert Friedman
The maker of aircraft components, climate controls and industrial materials posted a 3Q loss of $0.38 per share vs. $0.35 EPS. Results include $0.82 of myriad charges, which unfortunately is becoming normal occurrence. Ailing global airline industry, weakening economy, management snafus are all culprits in poor short-term performance.. S&P expect CEO Bossidy to shuffle the company's business portfolio. Honeywell has a history of 20%+ ROE and decent free cash earnings. But S&P's cash flow models still value Honeywell between $28-$38 a share.
Eastman Kodak (EK ): Maintains 3 STARS (hold)
Analyst: Richard Stice
The company posted 3Q EPS of $0.52 vs. $1.40, both before special charges, in line with the Street consensus. Revenues were down 8% on economic weakness, deferrals and cancellations following the September 11 attacks. Gross margin was hurt by price pressures. Further expense cuts will include more layoffs. The company will save about $400-$450 million in 2002 from cost-cut steps. S&P lowered its 2001 EPS estimate by $0.36, to $2.30, and 2002 by $0.40, to $2.70. Although trading at only 11 times 2002 estimate, below peers, would not add to positions amid present unfavorable near-term economic outlook.
El Paso Energy (EPG ): Keep 3 STARS (hold)
Analyst: John Kartsonas
The energy company reported 3Q EPS $0.78 before special items, vs. $0.55, $0.02 above S&P's estimate. The results reflect 17% higher natural gas production, and higher average realized prices as result of hedging, and 85% of remaining 2001 production hedged at about $3.79/Mcf, 70% of 2002 production hedged at above $4.00/Mcf. Pipeline segment EBIT was down 8.0%, and Merchant Energy's was up 26%. With significant uncertainty removed following recent ruling by California judge that cleared El Paso of alleged price manipulation, shares are attractive.
AT&T (T ): Maintains 3 STARS (hold)
Analyst: Craig Shere
Excluding other income and equity earnings, AT&T posted contuing EPS of $0.04 versus $ 0.35, in line with Wall Street's estimates. Other income was hurt by charges of $3.5B for closing the failed Concert joint venture and a $1.8B charge related to AT&T Canada. With weak long distance pricing and product substitution, business revenues were down 4.7% year-over-year and consumer revenue was down 17.8%. Broadband revenues climbed 15%, with margins up sequentially. Revenue per broadband subscriber was up on growing high speed data and telephony bundles. Based on 20 times multiple of annualized EBITDA less capital expenditure, equity value net of all liabilities is about $19.60 a share.
Compaq Computer (CPQ ): Maintains 3 STARS (hold)
Analyst: Megan Graham-Hackett
The company posted 3Q loss of $0.07 vs. $0.30, versus the Street's mean loss of $0.06. The news was in line with the company's preannouncement guidance and our estimate. Revenues were down 33% to $7.47B, as expected, as Access (PCs, PDAs) fell 42%, and Enterprise fell 38%, while Services rose 5%, excluding currency. The company said there was a gross margin of 19.9% vs. 23.9%, bit above S&P's estimates that was hurt by price pressures. The company sees 4Q revenues of $7.6-$7.8B, in line with S&P estimates, but sees unexpected loss of $0.03. S&P cut its 2001 estimate $0.05 to $0.06. And while visibility is still low, with the stock trading near historic low on a price-to-sales basis, S&P maintains a hold on the stock.
USX-Marathon Group (MRO ): Downgrading to 3 STARS (hold) from 4 STARS (accumulate)
Analyst: Tina Vital
The oil company reported 3Q EPS of $1.03 vs. $1.14, excluding special items, which was $0.15 above the Street consensus. Exploration & production income declined 44% on lower oil & gas prices. Refining & marketing was up 92% on wider margins. The long-awaited separation of its steel and energy units is expected by year-end and is subject to shareholders approval on Oct. 25, and a favorable IRS ruling. Sees 2001 EPS at $4.84, 2002 EPS at $3.35. With refined product demand likely to soften further on slowed economies, shares are trading in line with peers at nin times S&P's 2002 EPS, which is fairly valued.