Still Buy Fortune Brands

Also: analysts' opinions on Alcoa and Legato Systems

Fortune Brands (FO ): Reiterates 5 STARS (buy)

Analyst: Howard Choe

Fortune will buy Omega, a privately held maker of high-quality kitchen/bath cabinetry. With $325 million in 2001 sales, Omega will bolster Fortune's position in the industry's largest dealer channel. The $538 million purchase is at 1.7 times 2001 sales. The deal will be accretive to 2002 EPS by $0.08-$0.10, and more thereafter. Fortune continues its string of successful acquisitions in a segment that is benefiting from a strong housing/remodeling market. S&P is raising its 2002 EPS estimate by $0.09, to $3.11. Fortune still is cheap at 16 times that estimate.

Alcoa (AA ): Maintains 4 STARS (accumulate)

Analyst: Leo Larkin

The company posted EPS of $0.22 vs. $0.46 on a 19% sales decline -- on target with Street consensus. The drop in sales and EPS mostly reflects lower prices. Shipment volume were only down 4.6%. The first quarter dramatically improved from the fourth quarter on lower costs. Aluminum prices were flat. S&P still sees $1.85 EPS for 2002, and thinks the first quarter of 2001 was the trough for the industry. Aluminum is the only base metal not up from the fourth quarter. S&P likes its outlook for Alcoa and the aluminum industry on further consolidation, gains in auto applications, and the peaking of Russian exports.

Legato Systems (LGTO ): Upgrades to 2 STARS (avoid) from 1 STAR (sell)

Analyst: Jonathan Rudy

The company pre-announced lower first quarter revenues and EPS than expected, and anticipates revenues of $55-57 million, vs. estimates of $62 million. Legato also expects a loss per share of $0.05-0.07, compared to a consensus loss of $0.02. The company experienced weakness in Europe and Asia toward the end of the quarter. However, new management has done a solid job in restoring credibility for Legato. S&P is lowering its 2002 operating EPS estimate to $0.01, from $0.04. Despite solid management, increasing competition in storage software should continue to pressure shares.

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