Still Accumulate Novellus

US Airways (U ): Maintains 2 STARS (avoid)

Analyst: James Corridore

The nation's sixth largest carrier filed for Chapter 11 protection, listing assets of $7.81 billion and liabilities of $7.83 billion. It will continue to operate its route network while it reorganizes. Shareholders are unlikely to get much, if anything, in reorganization, in line with most bankruptcy proceedings. US Air should have more leeway to change union contracts in a bankruptcy, and may emerge as a more viable competitor. However, the share price more likely to hit zero than to rise in value.

Novellus (NVLS ): Reiterates 4 STARS (accumulate)

Analyst: Richard Tortoriello

Novellus agreed to purchase chemical mechanical planarization tool maker SpeedFam-IPEC for $220 million, or 1.8 times sales. Terms include 0.1818 Novellus share for each share of SpeedFam and the assumption of SpeedFam's $115 million in debt, with a closing expected in the fourth quarter. The acquisition would extend Novellus's strong position in copper deposition into copper/low-k dielectric chemical mechanical planarization. S&P believes Novellus is building a portfolio of advanced copper-related process tools, which will allow it to compete more effectively with industry leader Applied Materials.

Sun Microsystems (SUNW ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

Sun plans to announce the use of Intel chips in its low-end servers on Monday. The move was largely expected, and is not the first time Sun approved the development of Solaris on Intel. While the Solaris on Intel market is small, the new low-end LX50 also runs Linux, which represents a much larger market opportunity. S&P isn't making any changes to its estimates. With shares trading at a price-to-shares ratio of 1.1, below the historic average of 2.6, S&P views shares as attractive, but notes that Sun's operating earnings per share of $0.39 in fiscal 2001 (June) excluded $0.16 in options expenses.

May Department Stores (MAY ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Karen Sack

S&P is lowering the fiscal 2003 (Jan.) earnings per share estimate by $0.07, to $2.50. Although July quarter earnings per share were in line with estimates, earnings fell 3% to $0.34 before one-time charges for excess inventory; same-store sales also dropped 4.9%. A high level of markdowns eroded gross margins, but expense ratios were held in check. Operating income fell almost 7% before one-time charges. With an uncertain outlook for consumer spending in the months ahead, S&P sees May shares trading in line with the market.

Gap (GPS ): Maintains 2 STARS (avoid)

Analyst: Tuna Amobi

July and July quarter same-store sales slid 8% and 7%, respectively, though total sales in both periods edged up 1%. Gap's Gap stores continued to post the steepest comp-sales drop, with Banana Republic next on the list. On a positive note, Gap's Old Navy units posted the first positive comps-sales growth in a while, at 6%. This could portend the much-anticipated start of a gradual near-term turnaround. However, S&P would still avoid Gap -- pending more information on trends of its new "back-to-basics" fall line. Also, a yet-unnamed replacement CEO could signal a strategy or momentum shift.

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