S&P Cuts Ameripath to Hold

Ameripath (PATH ): Downgrades to 3 STARS (hold) from 5 STARS (buy)

Analyst: Robert Gold

Ameripath lowered its earnings per share guidance for the second half of 2002 by $0.06-$0.08 to reflect malpractice renewal rates in excess of budget. Also, 2003 Medicare rate revisions proposed by the Center for Medicare and Medicaid Services could reduce revenues by up to $10 million. S&P is trimming its 2002 EPS estimate to $1.76 from $1.84, a rise of 12% from 2001 after adjusting 2001 results to eliminate goodwill amortization, and is lowering the 2003 estimate to $2.06 from $2.24. With reduced visibility and lower growth prospects, S&P would not add to positions.

Tyson Foods (TSN ): Maintains 5 STARS (buy)

Analyst: Joseph Agnese

Shares are down Tuesday on an analyst downgrade, and on concern about higher livestock pricing plus the possibility that adverse weather will hurt feed costs. S&P believes the company's hedging action for corn, soybeans and livestock will offset any potential short-term input volatility. Given growth in value-added products and the benefits of synergy, S&P is keeping the fiscal 2002 (Sept.) and fiscal 2003 EPS estimates at $1.15 and $1.38, respectively. With shares at less than 10 times S&P's fiscal 2003 estimate, a sharp discount to the S&P 500 and industry peers, Tyson is undervalued.

Hot Topic (HOTT ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Karen Sack

S&P believes the teenage shopper is relatively immune to the political and economic troubles of the world. Hot Topic sales should remain strong and get a boost from the back-to-school season. The company's Torrid concept serves the plus-size teenager, who has fewer choices in places to shop. The company is on target to earn $1.05 in fiscal 2003 (Jan.), a 22% increase from the preceding year, and sees $1.30 in fiscal 2004. The company's balance sheet is conservative with no long-term debt and $73 million cash. S&P's 12-month target is $36.

Supervalu (SVU ): Maintains 3 STARS (hold)

Analyst: Joseph Agnese

The company reported June quarter earnings per share of $0.57, excluding charges, vs. $0.43 -- $0.01 below S&P's estimate. Supervalu restated its fiscal 2002 (Feb.), and fiscal 2001 and fiscal 2000 EPS due to a $17.6 million understatement of the cost of goods sold, an error made by a former employee. The situation appears to be an isolated issue. Retail food comparable store sales fell 1.1%, below S&P's expectations. Margins are benefiting from retail merchandising programs and distribution restructuring. Despite shares trading below peers at only 11 times S&P's fiscal 2003 EPS estimate of $2.29, Supervalu is fairly valued, given the projected 8% long-term growth rate.

Rational Software (RATL ): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Rational warned that June quarter revenue will be between $150-154 million and earnings per share will be in the range of $0.03-0.04. This compares to estimates of $166 million and $0.06, respectively. The company was impacted by weakness in the Americas region and in the telecom sector. S&P sees fiscal 2003 (March) revenues roughly flat year over year. Due to the challenging IT spending environment, S&P is lowering the fiscal 2003 EPS estimate to $0.36, from $0.48. With approximately $5.00 in cash and short-term investments per share, as well as a solid stock repurchase program, S&P would hold Rational at 1.9 times sales.

Biomet (BMET ): Maintains 4 STARS (accumulate)

Analyst: Robert Gold

The company met S&P's fiscal 2002 fourth quarter operating earnings per share estimate of $0.25 vs. $0.22 on a 13% sales gain. After a writedown of equity value in a gene therapy developer and other marketable securities, the company's EPS grew 4.5% to $0.23. Top-line growth fell $3.0 million below S&P's projection, but saw continued strength in hip and knee reconstructive implants, dental implants and spinal implants and related products. S&P is pleased by the well-contained selling, general and administrative ratio after a third quarter spike. The company also boosted its share buyback by $100 million. A conference call is scheduled for 12:00 p.m. EDT.

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