S&P Upgrades Dana to Hold

Dana (DCN ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Efraim Levy Stronger-than-expected auto sales should lead to higher vehicle production and translate into higher profits for Dana. Restructuring activities should also help margins. S&P has raised its 2002 and 2003 earnings per share forecasts from $0.69 and $1.43 to $0.87 and $1.67, respectively. Dana's below-market P/E ratio is in the middle of its historical and peer ranges. While based on S&P's forecast of free cash flow, Dana is priced lower than most peers; its projected net margins are also below most peers and are subject to the vagaries of automotive demand.

Express Scripts (ESRX ): Maintains 3 STARS (hold)

Analyst: Phillip Seligman

Express Scripts won a contract valued at up to $275 million over five years to supply mail-order pharmacy services to the U.S. armed forces. Work on the contract begins immediately, but mail-order delivery will not begin until March 1, 2003. Hence, the program may well be a drag on earnings until its revenues outweigh its costs, which is unlikely until 2003's second half. S&P's 2002 and 2003 earnings per share estimates remain at $2.44 and $3.05, respectively. Note, too, that the Health & Human Services Dept. and Defense Dept. subpoenas still hover over the company.

Xilinx (XLNX ): Reiterates 4 STARS (accumulate)

Analyst: Thomas Smith

The company's regular update leaves its September quarter revenue guidance unchanged at $270 million to $280 million. Gross margin also is unchanged at 58%-60%. The new Virtex-II line reported doing well. Programmable logic remains one of the most promising segments of the semiconductor business. Xilinx is a marketshare leader and should grow faster than the industry as a whole as the present expansion eventually gains speed. S&P is maintaining its estimates of $0.52 earnings per share for fiscal 2003 (Mar.) and $0.80 for fiscal 2004. At 28 times S&P's calendar 2003 estimate of $0.72, the PE/growth ratio is attractive at 1.1.

Comverse Technology (CMVT ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Ari Bensinger

Before charges, the company posted a July-quarter loss per share of $0.07 vs. $0.29 earnings per share, above the Street's mean of a $0.12 loss. However, the upside reflects higher than expected other income from foreign exchange gains; sales were below expectations. Comverse guides October sales down about 10%. S&P is widening the fiscal 2003 loss estimate to $0.39 from $0.27. Although delays in 3G wireless network launches will likely postpone growth opportunities, S&P sees Comverse's $7 cash per share providing support for shares. At under one times the book value, S&P believes difficulties are reflected in the stock price.

Tyco (TYC ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Michael Jaffe

Tycp appointed David Fitzpatrick to replace Mark Swartz as CFO, who resigned last month. Fitzpatrick had been CFO of United Technologies since 1998. Tyco continues to take actions to overcome the taint of the Dennis Kozlowski era, and the hiring of an experienced executive to replace Kozlowski's right-hand man is another good step. Tyco operates solid cash-generating units, and the shares are modestly valued at eight times S&P's $2.10 fiscal 2003 (Sept.) earnings per share estimate. Yet, ongoing government and internal probes are reasons for caution.

Graco (GGG ): Initiates with 3 STARS (hold)

Analyst: Byron Korutz

Graco manufactures equipment used to move and apply paints, coatings, sealants and lubricants, and mainly serves the homebuilding, automotive and heavy equipment markets. S&P sees earnings per share at $1.55 in 2002, and $1.70 in 2003. The healthy housing market should aid results in Graco's contractor equipment segment. However, soft capital equipment spending will likely pressure results in the automotive/industrial division. With the shares trading in line with industrial machinery peers and the broader market, S&P say hold Graco.

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