S&P Ups Comcast

Also: analysts' opinions on Microsoft and Merrill Lynch

Comcast Corp. (CMCSK ): Upgraded to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Howard Choe

The upgrade is based on Comcast's valuation and strong fundamentals along with its peers, Comcast shares have suffered over the past on concerns about leverage and digital subscriber growth, and Excite at Home problems. S&P believes the worst is over and digital cable will be boosted by video-on-demand. At current prices, Comcast stands out as the cable stock with the most to gain,based on a valuation of 11 times EBITDA multiple. While the company will face acquisition integration risk and have funding needs for AT&T Broadband, the newly-created AT&TComcast will be the largest, fastest growing cabler -- and the first in the industry to become free cash flow positive.

Microsoft (MSFT ): Maintains 4 STARS (accumulate): Analyst: Jonathan Rudy The software giant's March quarter EPS came in at $0.49 vs. $0.44 one year earlier, including a $0.15 gain from the Expedia sale, and a $0.14 charge for investment impairment. The Wall Street consensus EPS estimate of $0.51 excluded the charge, but included $0.10 of gains, for a $0.42 net. Revenues were up 13% to $7.25 billion, slightly below S&P's estimate. The company forecasts fiscal 2003 (ending June) worldwide PC shipments of mid-single digit growth. S&P sees low double-digit revenue growth for Microsoft in fiscal 2003. Due to the company's increasing investment in its business, S&P is lowering the fiscal 2003 EPS estimate to $1.91. Based on the discounted cash flow valuation, Microsoft remains at a notable discount to its intrinsic value.

Merrill Lynch (MER ): Maintains 4 STARS (accumulate): Analyst: Robert McMillan Merrill reached an interim agreement with New York State's Attorney General to provide more disclosure in its research reports about its corporate clients and information on investment banking ties. As a result, a state court vacated all injunctive provisions against the firm. Although Merrill is still working with the Attorney General's office on a broader settlement, this interim pact should help lift doubt on the quality of its research. With the shares at 16 times Wall Street's $3.05 2002 consensus estimate -- a discount to Merrill's peers -- and improving market conditions, S&P feels the shares remain attractive.

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