S&P Says Still Buy Wal-Mart

Wal-Mart (WMT ): Reiterates 5 STARS (buy)

Analyst: Karen Sack

Although same-store sales have slowed to a 3.3% rise from August's 3.8%, S&P sees Wal-Mart as the best positioned company among the group to continue to gain market share in a tough retail climate. Wal-Mart is less dependent on apparel sales than many other discounters. And its mix of food and general merchandise will keep sales gains ahead of the pack. Also, Wal-Mart is more diversified than other discounters, with overseas stores accounting for about 20% of sales. The shares are down only 12% year-to-date vs. a 22% drop in the S&P 500.

Orthodontic Centers of America (OCA ): Downgrades to 1 STAR (sell) from 4 STARS (accumulate)

Analyst: Phillip Seligman

The company reported the resignation of its CFO, John C. Glover, and the hiring of a replacement, Thomas J. Sandeman, who has no healthcare industry experience. The timing of the CFO's resignation, not long before OCA reports its third quarter results, seems a red flag. One possible problem is that the earnings quality has deteriorated. Given that, as well as management credibility issues, lack of clarity of accounting, and risks from the litigation brought by former OrthAlliance practitioners, S&P would exclude OCA shares from its portfolio.

Dow Jones (DJ ): Maintains 1 STAR (sell)

Analyst: William Donald

Dow Jones disappointed with $0.03 third quarter earnings per share compared with $0.08 expected by the Street, and down from $0.19 a year ago, reflecting weaker-than-expected advertising demand at The Wall Street Journal's print businesses. Alhough management is aggressively seeking to adjust, Dow Jones has sharply lowered its guidance for the fourth quarter and 2002. S&P cut its 2002 earnings per share estimate to $0.45 from $0.81, and cut 2003's to $0.90 from $1.17 to reflect a lengthy advertising recovery. Although shares have dropped over 45% year to date, S&P still considers Dow Jones overvalued in light of an uncertain near-term operating outlook.

USA Interactive (USAI ) and Ticketmaster (TMCS ): Maintains 3 STARS (hold)

Analyst: Mark Basham

USA Interactive raised the terms of its stock swap for the 33.5% of Ticketmaster it doesn't already own from 0.8068 to 0.935 USA Interactive shares per Tickemaster share. The terms represent a 19.2% premium to Ticketmaster's 20-day average closing price. USA Interactive also is ending the formal process to buy the rest of Expedia and Hotels.com. S&P would not be surprised if a similar sweetened bids were made for the two, but were rejected. USA affirmed its commitment to interactive travel services, and will seek closer cooperation with majority-controlled units.

Lexmark International (LXK ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

Lexmark preannounced upside to third quarter earnings per share expectations. It sees third quarter revenues up 4%-5%, in line with S&P's estimate, but sees earnings per share of $0.68-$0.70, above the prior guidance of $0.58-$0.68 and above the Street's mean $0.64 estimate. Lexmark also noted that the third quarter guidance includes a $0.09 asset impairment charge. Based on the new guidance, S&P believes the third quarter mix of supplies was more favorable than S&P had modeled. Lexmark's fourth quarter guidance shows reverse: Sales are stronger, but margins are weaker. S&P is raising its 2002 estimate by $0.02 to $2.60. The stock is trading at a price-earnings multiple of 15 times S&P's 2003 estimate, which is in line with the market.

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