Upgrading Wendy's to Buy as Burger Unit Sizzles

Wendy's International (WEN ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Dennis Milton

The company's Tim Horton's unit continues to grow at an impressive pace, while the Wendy's unit takes share from competitors in the quick-serve hamburger market. Same-store May sales are projected at 6.2% for Wendy's and 10%+ for Tim Horton's. Despite a $0.02 dilution from the Baja Fresh acquisition, S&P is raising the 2002 earnings per share estimate from $1.90 to $1.91, and is upping 2003's to $2.22 from $2.17. The recent strength of the Canadian dollar also allows for upside potential. With shares trading at 17 times S&P's 2003 estimate, shares offer growth at a reasonable price and S&P recommend investors purchase these shares.

Visx (EYE ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Robert Gold

S&P is concerned that laser vision correction procedures will not show the level of sequential performance built into existing revenue and earnings per share expectations and stock valuation. The company is guiding towards flat procedure volumes and EPS of about $0.12 in the second quarter, but this may prove optimistic amid global economic uncertainties. On its balance sheet, receivables (equal to 80.6% of first quarter sales, up from 64.4% at year end 2001) are yet another concern. S&P is lowering the second quarter EPS estimate by $0.02 to $0.10, and cutting the full year 2002 estimate by $0.06 to $0.47. With shares trading at 28 times the 2002 estimate, S&P says downside risks appear sizable.

S&P upgraded select Household & Personal Care stocks Analyst: Howard Choe

In light of their global presence, many companies in S&P's universe should benefit from the weakening U.S. dollar. The en and euro's gains on the dollar, should bolster revenues and earnings derived from regions. S&P is upgrading Avon (AVP ) and Gillette (G ) to 4 STARS (accumulate) from 3 STARS (hold); and is upgrading Estee Lauder (EL ) and Tupperware (TUP ) to 3 STARS (hold) from 2 STARS (avoid). S&P is maintaining its 4 STARS (accumulate) opinions on Procter & Gamble PG and Dial (DL ), and is keeping its 3 STARS (hold) opinion on Kimberly-Clark (KMB ).

IBM Corp. (IBM ): Maintains 4 STARS (accumulate)

Analyst: Megan Graham Hackett

The company announced a second quarter $2.0-$2.5 billion pre-tax charge related to the sale of hard disk drive assets to Hitachi, its restructuring microelectronics unit and productivity measures including some job cuts, which weren't quantified. In Microelectronics, IBM will raise its use of copper manufacturing, close older aluminum capacity, and increase its focus on custom chip design and advanced foundry services. S&P applauds these moves, and IBM believes benefits should be evident in the second half of 2002. There's no change to S&P's estimate yet. With shares trading at 20 times the 2002 estimate, below peers, shares are attractive.

Bristol-Myers Squibb (BMY ): Maintains 3 STARS (hold)

Analyst: Herman Saftlas

The company was hit by an antitrust suit filed by 29 states, alleging illegal tactics to extend its Taxol patent in 1997. While the courts will ultimately decide, S&P believes Bristol-Myers infusion patents did not violate any laws. In another development, a congressional committee is investigating ImClone's handling of its Erbitux anticancer drug (Bristol-Myers has invested $1.2 billion in ImClone for the rights to Erbitux). Bristol-Myers is valued at a discount to peers on price-to-earnings and price-to-sales basis. Also, the company remains a highly visible merger candidate in the depressed drug sector.

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