S&P Downgrades AT&T to Hold

Also: Analysts' opinions on Philip Morris; AIG; and Constellation Energy

AT&T (T ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Craig Shere

The telecommunications company posted operating EPS of $0.05, vs. $0.24, just above Street estimates. Long distance and 800 number revenues continue to show deterioration, though under half of business unit revenue now is from long distance. S&P's proforma 2002 estimates, assuming the sale of the Broadband unit to Comcast at the start of 2002, now suggests about $0.51 per share free cash flow. The acqusition value (in Comcast shares) for Broadband now is about $11.50 per AT&T share. This implies the rest of AT&T is trading at 10.6 times its free cash flow. Given the weak growth prospects for business and consumer segments, S&P sees AT&T as a reasonable stock.

Philip Morris (MO ): Maintains 4 STARS (accumulate)

Analyst: Richard Joy

The tobacco and food manufacturer posted fourth quarter EPS of $0.99 vs. $0.87, as expected. Full year EPS was $4.04 vs. $3.71. Q4 U.S. tobacco operating income rose 7% on improved pricing. Market share rose to 50.6%. International tobacco added 3%. Domestic food profits rose 51%, reflecting the Nabisco contribution, volume growth and synergy savings. International food climbed 18%. Beer profit added 31% on volume/pricing gains and financial services grew 17%. S&P sees 2002 EPS at $4.86, including the new FAS 142 accounting benefit Solid operating results and above-average dividend yield make Philip Morris attractive at only 10 times S&P's 2002 EPS estimate.

American International Group (AIG ): Downgrades to accumulate from strong buy

Analyst: Catherine Seifert

Shares are weak again Wednesday even though AIG affirmed that there would be no income statement/balance sheet impact from its investment in PNC Financial's "special-purpose vehicle." AIG conservatively consolidated this investment on its books, unlike PNC. S&P is encouraged by this news, but cannot overlook market sentiment, which is not with this stock right now. S&P still likes AIG long term, but says it's no longer a strongly recommended purchase.

Constellation Energy (CEG ): Downgrades to to hold from accumulate

Analyst: James McCann

With shares up following an announcement of a dividend increase and cost-cut measures, the stock seems fairly valued at 10 times S&P's new 2002 estimate of $2.70. The annual dividend payout doubled to $0.96, providing a yield of 3.6%. Fourth quarter operating EPS of $0.46, vs. $0.57, and 2001 EPS of $2.60, vs. $2.43, was in line with S&P's estimates. Both exclude special charges of $2.05, related to a pending 10% cut in the work force, a cancellation of power projects, the termination of a services agreement with Goldman Sachs, and the pending sale of non-core assets.

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