S&P Upgrades Earthlink to Accumulate

Earthlink (ELNK ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Scott Kessler

Earthink announced Tuesday it would begin providing broadband services to customers of AT&T Broadband. Earthlink now has the country's largest cable ISP footprint, with AT&T's 13.6 million subscribers and AOL Time Warner's 12.8 million. S&P believes the pact may help Earthlink win similar business with AT&T's merger partner, Comcast. S&P sees the company as being well positioned to benefit from At Home's recent demise. At 24 times S&P's 2003 earnings per share (EPS) estimate of $0.43, and with $4.12 per share in cash and investments, Earthlink has very compelling value.

RPM Inc. (RPM ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Richard O'Reilly

S&P sees the company as benefiting from a stronger industrial economy and consumer spending. EPS for a seasonally slow February quarter could top $0.02 consensus including a lower goodwill expense, reflecting the milder winter weather. This contrasts with a year-ago loss of $0.07. S&P still sees fiscal 2002 (May) EPS of $0.95 with $0.20 lower goodwill expense, vs. fiscal 2001's $0.63 EPS. While the planned sale of 10 million common shares will be mildly dilutive to EPS, S&P views this as positive because the company's debt ratio will be cut to 50% and may allow for acquisitions to generate growth. RPM's dividend is yielding 3.2%.

Maytag (MYG ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Efraim Levy

Maytag now sees 2002 EPS around $2.50 compared to Feb. 26 guidance of $2.10-$2.20, and S&P's forecast of $2.18 For the first quarter, Maytag sees sales expanding 20%, vs. S&P's forecast of 17%, reflecting relatively easy year-to-year comparisons, a retailer inventory restocking and the acquisition of Amana. S&P sees first quarter EPS of $0.70-$0.75. Comparisons will get tougher as the year progresses, but S&P thinks the results should benefit from the strengthening economy and is putting estimates under review. Despite a recent rally, positive momentum could drive shares higher.

Lucent Technologies (LU ): Maintains 3 STARS (hold)

Analyst: Ari Bensinger

The compant sees a modest-to-10% March-quarter sales rise from the December quarter, below the prior guidance of 10%-15%. The company believes 20% March-quarter gross margin are achievable, and are well below S&P's 24% estimate. Even with lowered guidance, Lucent's sales projections are well above guidance from rivals Nortel and Ciena, both which forecast a significant March-quarter sales decrease from the December quarter. S&P is widening the fiscal 2002 loss per share estimate to $0.19 from $0.15, and believes the target for 35% gross margins during fiscal 2003 (Sept.) are too aggressive. But at an enterprise value of 1.5 times the fiscal 2002 sales estimate, below peer average, S&P thinks the challenges already are factored into Lucent's share price.

E-Trade Group (ET ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Robert McMillan

Shares up over 8% in the past five days and are trading at about 21 times S&P's 2002 $0.47 operating EPS estimate, significantly higher than the multiples accorded to E-Trade's larger rivals with more diverse businesses. Although S&P expects that the company will benefit from higher trading volume as the markets rebound, S&P thinks the shares are likely to underperform the market given their high valuation, and amid doubts about the sustainability of increased trading activity and a likely slowdown in the mortgage lending business.

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