Buy Gannett

Gannett (GCI ): Maintains 5 STARS (buy)

Analyst: William Donald

GCI reported a 2% rise in August revenues on slightly improved newspaper advertising and an 18% advance in television advertising. Earnings per share for 2002 appears on target to rebound to S&Ps' estimate of $4.33, up 33%. S&P projects a 12.5% rise in 2003 to $4.87. Gannett should remain at the forefront of the market recovery, benefiting from a strengthening economy, improving demand for advertising, and cheap newsprint. The inclusion of an option expense would have decreased 2001 earnings per share by only $0.14, or 4%, which is indicative of high quality earnings per share.

GTech (GTK ): Maintains 4 STARS (accumulate)

Analyst: Thomas Graves

The stock is up sharply after better-than-expected August quarter earnings per share of $0.66 vs. $0.28, and the company's raised earnings per share guidance for fiscal 2003 (Feb.). Especially impressive is the profit margin improvement from GTech's services business. S&P is upping the fiscal 2003 earnings per share estimate to $2.15 from $1.77, and is upping fiscal 2004's $2.35 earnings per share estimate from $1.93.

S&P does have some concerns about the outlook for profits from Brazil, where GTech has a significant amount of business. However, S&P sees the company as an attractive cash flow story, and likes the stock at its below-market price-earnings multiple.

J.D. Edwards (JDEC ): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Shares are down sharply Friday following the company's 10-Q filing on Sept. 12, which shows that J.D. Edwards benefited from a lower allowance for doubtful accounts, in addition to a reduction in vacation accrual because of a new vacation policy. Both examples benefited third-quarter earnings. S&P is concerned about sustainable levels of profitability, but doesn't think financial manipulation is an issue in this instance. With shares trading at a discount valuation to peers at 1.5 times sales and with over $2.80 per share in cash and investments and no debt, J.D. Edwards is worth holding.

Lucent Technologies (LU ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Ari Bensinger

Lucent sees September quarter sales down 20%-25% from the June quarter, below expectations. Guidance indicates a telecom spending recovery is taking longer than expected. S&P sees further workforce reductions as Lucent aims to lower its quarterly breakeven target to $2.5 billion from $3 billion. But even with additional actions, S&P views the company's goal of operating profitability by the end of fiscal 2003 (Sept.) as aggressive.

S&P is widening the fiscal 2002 loss estimate to $0.84 from $0.77. Lucent is trading at only 0.5 times S&P's 2002 sales estimate. But with $0.32 book value and no near-term catalysts, S&P says avoid.

Technitrol (TNL ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Michael Jaffe

The company now sees third-quarter sales of $100-$104 million and earnings per share of $0.05-$0.06, versus $0.07 consensus. Technitrol is experiencing flat to slightly better demand in its markets, but pricing pressures are limiting margins. This has prompted the company to initiate further restructuring actions. S&P is cutting the 2002 earnings per share estimate to $0.05 from $0.10, and is trimming 2003's to $0.65 from $0.95. Technitrol is a good choice for the eventual revival of the communications sector, but the recovery is delayed again and the shares are at a premium valuation of 28 times S&P's 2003 EPS forecast.

Baxter International (BAX ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Robert Gold

The company notified dialysis centers that certain blood tubing used in Baxter's dialysis machines may be tied to five patient deaths. Baxter's equipment may not be at fault, but the company could see disruptions as an investigation unfolds. Also, S&P is concerned about a slowdown in the plasma protein area. S&P is reducing the 2002 earnings per share estimate by $0.05 to $1.95, and trimmed 2003's by $0.10 to $2.25. Also, S&P is trimming the 2002 "core" estimate by $0.05 to $1.70. Despite a low price-earnings multiple, with eroding revenue and EPS visibility, and possible, albeit unlikely, patient death liabilities, caution is warranted.

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