Downgrading AES

AES Corp. (AES ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Craig Shere

With various companies seeking to divest their Latin American utility assets and problems in Venezuela and Argentina worsening, S&P sees little chance AES will be able to successfully divest third world assets. Large write downs are likely in the first or second quarter earnings release. If AES alleviates the cash crunch by only divesting stable U.S. utility assets, S&P sees the company's total risk profile worsening. Given AES's new focus on totally hedged power production, it is the least likely of unregulated producers to benefit in a power prices recovery. Park Place Entertainment (PPE ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Thomas Graves

S&P sees recent improvement in major gaming markets but expects Las Vegas Strip's 10% rise includes the unusual benefit from the timing of New Year and the Super Bowl. S&P is adjusting the 2002 EPS estimate to $0.46, from $0.45, which includes about a $0.16 benefit from an expected goodwill accounting change. S&P still views Park Place as an attractive cash flow story and expects improving economic and travel trends to help the stock. But after rising over 80% from a September 2001 low and about 26% from year-end, S&P sees less near-term upside. The six to 12-month target: $13.25.

Sears (S ): Maintains 5 STARS (buy)

Analyst: Karen Sack

Improved operating margins should boost Q1 EPS by 107% to $0.93, before non-comparable items, despite a 4.7% decline in March same-store sales. Appliance and fitness categories remain strong, but apparel is weak. Sears is lowering its cost structure via better inventory management and strong cost controls. S&P is raising its 2002 EPS estimate by $0.20, to $4.95. Sears sees a 50% rise in operating profit by 2004. Also, credit card operations are highly profitable. Sears is on a EPS growth track for the next few years, and is undervalued at a price to earnings multiple of 11. S&P is raising the 12-month target to $68 from $64.

Idec Pharmaceutical(IDPH ): Reiterates 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Idec says U.S. Rituxan sales were $235 million in the first quarter -- $1 million below S&P's view. The company estimates first quarter EPS will be $0.17, a penny above S&P's estimates. The Zevalin launch last month should help support solid EPS growth into 2004; thereafter, the success of current pipeline or in-licensed products will likely be needed to sustain very rapid growth. S&P sees 2002 EPS at $0.88, 2003 EPS at $1.21, and 2004 EPS at $1.54. Using S&P's 2003 estimates, Idec's price-earnings-to-growth ratio of 1.3 is slightly below biotech peers, and S&P feels shares warrant a premium and remain attractive.

Research In Motion (RIMM ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

The company posted a February quarter operating loss of $0.14 vs. year-ago EPS $0.10, in line with S&P's estimate. Revenue was $66 million, down 7% from the November quarter, just below expected. Gross margin beat S&P's estimate, at 42% vs. 37% in the November quarter, on greater software/services in its mix. The company sees first quarter revenue of $70 million, vs. its prior guidance $75-$80 million, and a loss of $0.18-$0.22, vs. $0.09 that S&P had forecasted. This reduction reflects delays in general packet radio service (GPRS) rollouts in Europe. S&P now now sees a fiscal 2003 (Feb.) $0.41 loss, vs. the $0.08 earlier seen. Research In Motion is executing well in a tough environment, with new carrier deals boding well for the future. Shares are worth holding.

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