Accumulate Steak N Shake

Also: analysts' opinions on Nokia, Enron, Donaldson and Ansys

Steak N Shake (SNS ) Upgrading to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Markos Kaminis

September quarter EPS was $0.20 vs. $0.17 from continuing operations, in line with expectations. Revenues were hurt by September tragedy but managed 5% growth on fractional same-store sales rise, and higher pricing. The company reports difficult visibility into December quarter, but expects to match last year's result. Pretax margin widened 100 basis points, benefiting from moderated store growth and menu price hikes. At 12 times S&P's fiscal 2002 EPS estimate of $0.89, the company is well below small-cap restaurant peers and expectation for 17% EPS growth in fiscal 2002.

Ansys Inc. (ANSS ) Adding with 5 STARS (buy) recommendation

Analyst: Massimo Santicchia

The company is developing and marketing software for design analysis and optimization. It is very well-diversified across a broad range of industries including significant exposure to aerospace and defense. Sales rise of 16% expected for 2002, 12% for 2003. Gross margin averaged 87% over last three years while R&D was high at 21% of sales. The company has no debt. Strong cash flow generation is expected to continue over the next five years. Analyst sees EPS of $1.13 for 2001, $1.25 in 2002, based on discounted free cash flow analysis. S&P has a six- to 12-month price target of $28.

Nokia (NOK ) Maintains 2 STARS (avoid)

Analyst: Ari Bensinger

The company sees slightly negative sales growth in the first quarter 2002, well below S&P's 6% estimate, and 2002 sales rise at 15%, vs. S&P's below-consensus 18% estimate. Guidance indicates recovery in the mobile market will be slower than expected. The company projects 2001 handset market at 380 million units (down 5%), and 2002 market at 420 to 440 million units. Nokia's handset market share gains have begun to stall as it emphasizes profitability over sales growth. Industry competition is intensifying with recent Ericsson and Sony alliance. At over three times S&P's 2002 sales estimate, well above peers, Nokia remains unattractive. Enron (ENE ) Maintains 3 STARS (hold)

Analyst: John Kartsonas

Reports are circulating of a renegotiation of the Dynegy deal. With shares trading at a 62% discount to the value of agreed-upon swap ratio of 0.2685 Dynegy shares per Enron share, reports have companies proceeding with deal but Dyngey is lowering ratio to about 0.15. Concerns over Enron's liquidity, despite $6.5 billion cash infusion since Sept. 30, has driven the company's stock to decade low. In about two months, Enron has burned through over $5.3 billion cash in paying debt and providing collateral for trading purposes. Enron is in a tough position. The deal collapse would most likely lead to financial distress.

Donaldson (DCI ) Still 4 STARS (accumulate)

Analyst: Stewart Scharf

The company reports first quarter EPS of $0.43, vs. $0.37, which is a bit above consensus. Gross margin widened above 30% on plant closings and better product mix. Strong cash flow was used for debt paydowns. Interest expense was declining as interest rates fell. Donaldson sees further strength for gas turbine business, albeit at slower pace. Engine products business is expected to improve, but dust collection likely to remain weak. It projects fiscal 2002 (year-end July) plant rationalization costs of $0.08 vs. $0.17 in fiscal 2001. With favorable prospects and shares trading at 19 times S&P's $1.90 EPS estimate, S&P recommends adding to positions.