Still Accumulate USA Interactive
General Motors (GM ): Reiterates 4 STARS (accumulate)
Analyst: Efraim Levy
The company's May auto sales were weak, with both cars and trucks down 12%. GM is losing market share in the quarter as volume falls more than at Ford and others. Even so, the company raised its 2002 earnings per share guidance to $6, vs. S&P's $6.20 forecast and First Call's mean of $5.45. Price pressure is worsening, but GM is offsetting that with its improved light truck mix. Mid-size SUVs are the company's sweet spot; mid-size sedans will remain a challenge. S&P is raising estimates of U.S. production. However, GM expects intense pricing pressure for the rest of 2002.
USA Interactive (USAI ): Maintains 4 STARS (accumulate)
Analyst: Mark Basham
Shares are down after USA Interactive offered to acquire some of its public units. The company is offering about $4.5 billion, at last Friday's closing price, to acquire the 34%, 46%, and 34% of the remaining portions of Ticketmaster, Expedia, and Hotels.com it doesn't now own. The offers represent a 7.5% premium over Friday's close. S&P is trimming the 2002 earnings per share estimate for USA Interactive from $0.43 to $0.41, and is cutting 2003's from $0.70 to $0.68, before any cost savings from simplified ownership structure. The offers represents the logical next step in USA Interactive's evolution into a pure interactive commerce company.
Williams Cos. (WMB ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)
Analyst: Craig Shere
The shares are off 15% Monday morning as investors responded to an article in Sunday's New York Times detailing allegations that Williams flaunted risk control measures. The article also questions the sustainability of earnings from trading operations, noting that some of the 2001 profit derived from interest rate fluctuations. Even if these allegations are exaggerated, S&P sees zero investor tolerance for impropriety or obfuscation in the unregulated power space. The news does not make balance sheet restructuring by Williams -- an attempt by the company to avoid a junk credit rating -- any easier.
Expedia (EXPE ): Reiterates 4 STARS (accumulate)
Analyst: Scott Kessler
USA Interactive said it was offering to acquire the remaining portion -- about 46% -- of Expedia that it doesn't already own via a swap of 2.6969 USA Interactive shares (worth about $76.86 at Friday's close) per Expedia share. This represents a narrow 7.5% premium from Expedia's May 31 close, and in S&P's opinion, is a low offer -- in light of recent weakness in Expedia shares. Expedia has formed a committee of independent directors to evaluate the offer. Even with USA's voting stake, S&P expect Expedia to eventually secure a better price.
Millennium Chemicals (MCH ) and Lyondell Chemical (LYO ): Maintains 3 STARS (hold)
Analyst: Richard O'Reilly
As expected, Millenium will not exercise its right to buy part of Occidental Petroleum's 29.5% interest in Equistar Chemicals. Millenium had tried in 2000 to sell its own Equistar interest. Lyondell will now buy all of Occidential's stake, bringing its interest to 70.5%, and Occidential will receive about 32 million Lyondell common shares, for a 20% stake in Lyondell. The deal gives Lyondell a greater share of a potential cyclical upside in Equistar without paying cash to Occidential. Equistar is currently seeing price gains for polyethylene resins.