S&P Cuts Biogen to Avoid

Also: analysts' opinions on RF Micro Devices and Merrill Lynch

Biogen (BGEN ): Downgrades to 2 STARS (avoid) from 4 STARS (accumulate)

Analyst: Frank DiLorenzo

The company lowered guidance on 2002 Avonex revenue growth from the mid-teens to the 6%-10% range, citing inventory reduction for the second quarter and lower overall market growth. Biogen also cut its 2002 earnings per share guidance to $1.50-$1.60. Avonex growth is much lower than S&P envisioned and thinks that Serono's Rebif drug is having a greater negative impact on Avonex than expected. While S&P still likes prospects for Amevive and Biogen's pipeline, Avonex visibility is greatly reduced. S&P is lowering the 2002 earnings per share estimate to $1.47 from $1.74, and is trimming 2003's to $1.83 from $2.14.

RF Micro Devices (RFMD ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Thomas Smith

The company warned that June quarter revenue will likely be in the $98-$101 million range, down from prior guidance of $107-$110 million, and expects to break even, vs. the $0.02-0.03 earnings per share previously expected. Customers are booking wireless phone chips in the March quarter for delivery in the June quarter are pushing out orders. Delayed recovery and negative investor sentiment on the tech sector dim the company's prospects. S&P is lowering the fiscal 2003 (March) EPS estimate to $0.13 from $0.20, and is lowering fiscal 2004's to $0.33 from $0.40. At 34 times S&P's $0.29 calendar 2002 estimate, valuation is high vs. the market and peers.

Merrill Lynch (MER ): Maintains 4 STARS (accumulate)

Analyst: Robert McMillan

The company announced changes in its research department driven by a recent settlement with New York state. Merrill will move to simpler buy/sell/hold ratings by September, with risk and dividend outlooks, and set new compensation system, effective immediately, basing analyst pay mostly on industry expertise and performance, without input from its investment banking arm. S&P believes these initial steps should help lift doubt on the quality of Merrill research. With shares at 13.5 times S&P's conservative 2002 $2.89 earnings per share estimate, below peers, Merrill is attractive.

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