Keep Accumulating AOL Time Warner

Also: S&P downgrades Electronics Boutique

AOL Time Warner (AOL ): Keep 4 STARS (accumulate)

Analyst: Scott Kessler

The analyst reiterates the accumulate rating as the company ends 2001 with a strong performance from its movie operations. AOL was the 2001 share-leader of the movie market, with more than $14.3 billion in sales. The company's Warner Brothers and New Line studios have had an extremely successful fourth quarter with blockbusters Harry Potter, Ocean's 11, and Lord of the Rings. There is like promise in 2002 with Powerpuff Girls, Analyze That, and sequels on tap for the Harry Potter and Lord of the Rings franchises. Despite perceived negatives associated with the possible repurchases of stakes in AOL Europe and Time Warner Entertainment, AOL has a nice value at 24 times 2002 estimate.

Electronics Boutique (ELBO ): Downgrading to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Markos Kaminis

The analyst downgrades the stock to accumulate from buy since near-term profit-taking may restrain the shares. We still view ELBO as undervalued, based on our discounted cash flow analysis and other valuation metrics. But the shares may be pressured near term. The stock has risen 129% in 2001, making them susceptible to early 2002 selling as individual investors push tax gains forward one year. In addition, he is anxious to see return rates for new consoles, especially the XBox, given its first-time status. Though he views ELBO's intrinsic value as about $50, he advises restraint over the next few weeks.

Please note: S&P analysts made the following comments on Dec. 28:

Ford (F ): Upgrading to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Efraim Levy

Ford was the worst performing automotive stock in the S&P STARS universe in 2001, down 33% through Dec. 27. But the analyst believes the shares will get some support from its above average dividend yield of 3.75%. With F trading near its 2001 lows after falling to its lowest price since 1997, looking to an early 2002 benefit from the end of tax loss selling. Although he is concerned about unfavorable long term pressure on sales and margins, he sees seasonal opportunity in the shares. He sees 2002 as a transitional year, as he expects Ford to announce restructuring initiatives in January.

HNC Software (HNCS ): Initiating coverage with 3 STARS (hold)

Analyst: Scott Kessler

The leading developer of predictive software solutions is now focusing on financial-services and insurance industries after the September spin-off of Retek, which pursues clients in retail. HNCS offerings are used for such tasks as fraud detection and customer profitability assessment. Despite recent troubles stemming from a weak economy and the September 11 attacks, the analyst expects greater demand for HNCS products amid higher emphasis on security. But at 29 times a 2002 EPS estimate of $0.71, and with significant exposure to the struggling financial segment, he rates it a hold.

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