Still Hold Allergan After Spinoff

Also: Analysts' opinions on HMA, Tyco, Fleming, Rehabcare

Allergan (AGN ): Maintain 3 STARS (hold)

Analyst: Herman Saftlas

The company plans to spin off its slower-growing eye-care surgical and contact lens units to shareholders as stock in newly formed American Medical Optics. This will transform Allergan into a pure play in high-margin, rapidly growing specialty drugs. Fourth quarter EPS was up 27% to $0.61, $0.01 above consensus, on 13% sales gain. Results were led by new products such as Lumigan for glaucoma, cosmetic use of Botox, and strength in skin-care lines. Gross margin widened to 76.3% from 72.8. But the company's pipeline is relatively thin. Stock is in line with its specialty pharma peers.

Health Management Associates (HMA ): Maintain 4 STARS (accumulate)

Analyst: Phillip Seligman

Beats our December quarter EPS estimate by $0.01, at $0.20 vs. $0.16 on 14% revenue gain. Strong pricing, rising admissions and patient acuity levels and cost controls helped increase same-unit EBITDA 130 basis points to 24.6%, above industry peers and S&P's 24.0% expectation. S&P still sees fiscal 2002 (Sept.) EPS at $0.95, fiscal 2003 at $1.12. The stock remains a compelling choice, with HMA positioned for continued benefit from improving pricing trends, aging population, cost disciplines and financial options enabled by healthy and growing free cash flow.

Tyco International (TYC ): Maintain 5 STARS (buy)

Analyst: Michael Jaffe

Shares are likely to open higher on announcement that Tyco will be splitting into four independent publicly traded companies. Tyco thrived over the past decade as a conglomerate with great access to capital, but over the past couple of years, its complex financial practices generated a vast array of rumors. Dennis Kozlowski, Tyco's chairman and CEO, will hold these posts at Security & Electronics company while other units will be taken public over the course of 2002. S&P views the plan positively, as units are now big enough to thrive on their own, and perhaps be more agile than behemoth Tyco.

Rehabcare (RHB ): Downgrading from 5 STARS (buy) to 3 STARS (hold)

Analyst: Mark Basham

The company provides additional insight into turmoil in its staffing division that management did not provide less than two weeks ago during a healthcare conference presentation. Although management may be able to right division to its historical growth and profitability, lack of accurate, timely information suggests that future expectations should be heavily discounted. S&P is cutting 2001 EPS estimate from $1.70 to $1.20, 2002 from $1.80 to $1.40, 2003 from $2.30 to $1.70. Rehabcare is fully valued based on trailing 12-month EPS.

Fleming Companies (FLM ): Maintain 1 STAR (sell)

Analyst: Joseph Agnese

On Monday, Fleming stopped shipments to all Kmart stores as a result of the retailer's failure to make its regular weekly payment. Fleming also sent Kmart a notice of reclamation along with a notice of failure to pay. While Fleming will likely recover its approximately $78 million in receivables, possible Kmart store closings and lower than previously expected growth in conversions would have a significant impact on its operating efficiencies. Kmart is Fleming's largest customer, contributing 27% to last quarter sales. With very poor visibility, S&P recommends selling Fleming shares.

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