Accumulate Forest Labs

Forest Labs (FRX ): Reiterates 4 STARS (accumulate)

Analyst: Herman Saftlas

Forest Labs says it now sees September-quarter earnings per share at least 30% above the Street's consensus of $0.57. Year-ago earnings per share were $0.43. Forest Labs is projecting sales up 38% for the quarter, driven by stronger than expected sales of its Celexa antidepressant (indicated at $388 million, up 52% from a year ago) and the robust initial launch of Lexapro second-generation Celexa. S&P estimates fiscal 2003 (Mar.) earnings per share of $2.65, and fiscal 2004's at $3.14. Forest Labs also has an impressive R&D pipeline. However, its shares are richly valued, with a price-earnings multiple at the upper limits of the specialty-pharmaceutical range.

Supervalu (SVU ): Maintains 3 STARS (hold)

Analyst: Joseph Agnese

Supervalu posted August-quarter earnings per share of $0.44, vs. $0.44, in line with lowered guidance. Retail segment comparable-store sales fell 0.8% and customer counts remained steady, reflecting a consumer trade-down to lower priced goods. Distribution segment sales and margins were hurt as anticipated customer departures were not offset by expected cost reduction benefits, which now are expected to occur later in the year. With shares trading at a historically low price-earnings multiple of 7.3 times S&P's fiscal 2003 earnings per share estimate of $2.16, S&P says Supervalu is O.K. to hold, despite the poor environment.

Comcast (CMCSK ): Maintains 3 STARS (hold)

Analyst: Howard Choe

On Monday, Moody's was the final ratings agency to assign investment-grade status to the pending post-merger AT&T Comcast, ensuring the combined entity access to its $12.8 billion in bank financing. Moody's also downgraded Comcast itself one notch to Ba1 (junk), citing merger challenges. However, Comcast has no plans to issue major debt near-term. While it does face much integration risk with AT&T Broadband, the combined company should eventually gain great operational leverage. S&P thus sees Comcast as fairly valued at an enterprise value of eight times EBITDA.

AT&T (T ): Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth

AT&T announced that Betsy Bernard, the head of its Consumer unit, will head the Business unit and become President of AT&T following the spinoff and sale of the broadband unit to Comcast, likely in November. Under Bernard, the Consumer unit's second-quarter revenues fell 22%, hurt by competitive pricing pressures, but the company is expected to increase its customer base amid WorldCom struggles and low local wholesale rates. Although there are also industry specific risks, with Broadband unit value (in Comcast shares) amounting to roughly $6.80 of AT&T shares, S&P says the telecom is O.K. to hold.

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