S&P Upgrades Adtran

Also: Analysts' opinions on Micrel and Bank of New York

Adtran (ADTN ): Upgrades to 3 STARS (hold) from 1 STAR (sell)

Analyst: Ari Bensinger

Before impairment charges, Adtran sees September quarter earnings per share of $0.24-$0.26 on sales of $88 million, above S&P's $0.15 and $86 million estimates. Upside was driven by significantly higher gross margin from manufacturing efficiencies and cost controls. Adtran also reinstated the salaries of its full-time employees, which were reduced in the third quarter of 2001 -- a move that should negatively impact the December quarter by $0.02. Adtran is trading at an above-peer-average valuation of two times S&P's 2002 sales estimate. But given its superior execution in this difficult operating environment, S&P believes the premium is warranted.

Veritas (VRTS ): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

The CFO resigned because of misstatements of his academic credentials, including a receipt of an MBA from Stanford. However, this news has no bearing on the accuracy of Veritas' financials or the quality of financial procedures or controls. Separately, Veritas reaffirmed third-quarter guidance for the second time in a week. While the CFO news is a surprise, S&P believes it is an isolated event and not an endemic problem. Despite the disappointing news, S&P would still hold the storage leader that has a strong balance sheet and continues to take market share in a difficult environment.

Bank of New York (BK ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Stephen Biggar

Bank of New York announced a $260 million third quarter charge for an added loan loss provision and for valuation adjustments to its equity portfolios. The company noted continued deterioration in a number of telecom credits. Ongoing sluggishness in capital markets activity also is hurting its core securities servicing businesses. S&P is lowering the 2002 earnings per share estimate to $1.55 from $2.08, and is cutting the 2003 estimate to $2.15 from $2.35. With a rebound in the company's operating environment not occurring in the second half of 2002 as S&P had expected, S&P thinks the stock will be unable to recapture a premium valuation in the next six to nine months.

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