S&P Cuts Yahoo to Sell

Yahoo! (YHOO ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Scott Kessler

Shares have risen notably since the company on Oct. 10 reported better third quarter results than expected. However, S&P thinks the stock has gotten very ahead of itself. With a price-earnings multiple of 88 and 61 on S&P's 2002 and 2003 EPS estimates, Yahoo trades at a big premium to its projected long-term annual growth rate of 24% and to the valuations of its peers. Yahoo's enterprise value/EBIDTA for 2002 of 37 and 2003 of 31 are also much higher than other media companies. With an uncertain economy and significant options exposure, S&P recommends selling into the short-covering rally.

Andrx (ADRX ): Maintains 3 STARS (hold)

Analyst: Herman Saftlas

A court ruled that Andrx's generic of AstraZeneca's Prilosec (U.S. sales $3.7 billion) infringes on AstraZeneca's patents. S&P is cutting its 2002 earnings per share estimate by $0.30, to $0.10 (before generic Prilosec writeoffs), and is cutting 2003's by $1.10, to $0.90. Andrx plans to appeal the decision. Also, it may salvage its FDA granted first-filer generic Prilosec rights through a possible deal with Schwarz Pharma AG. The company's pipeline still contains over 25 new drug applications. Andrx is priced at a discount to peers based on S&P's 2003 estimate.

OG&E Energy (OGE ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Craig Shere

OG&E shares have fallen 12% since Thursday's close, reflectingthe company's announcement of a $25 million Oklahoma electric rate cut settlement. OG&E is also on the hook for $25 million per year in reduced pass-through expenses for ratepayers. S&P is cutting the 2003 earnings per share estimate to $1.39, from $1.55. In Monday morning's conference call, OG&E affirmed its short-term commitment to its dividend. The stock is now trading below peers, based on price/earnings and price/book ratios. S&P sees risks of a 2003 dividend cut already reflected in the current share price.

TXU Corp. (TXU ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: James McCann

The company's share price is plunging Monday after TXU cut its dividend 80%. The drastic move reflects the need to shore up its cash position to maintain an investment grade debt rating, which is deteriorating on the far worse than expected condition of its European operations, which the company will try to sell. TXU just amended a $500 million credit facility to eliminate its European cross default provision. To help meet near term maturities, the company also negotiated a new $1 billion credit facility at its Oncor unit. S&P says the moves are necessary, but sees little shareholder value over the near term.

Chiron (CHIR ): Reiterates 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Chiron raised its third quarter EPS guidance to $0.45, well above the Street's and S&P's estimates of $0.32, and upped the full 2002 guidance to $1.25-$1.30, above the prior $1.10-$1.20 and above S&P's estimate of $1.18. The company cited improving performance for all divisions. Chiron will report third quarter results on Oct. 23. S&P is preliminarily raising its 2002 EPS estimate to $1.30. Chiron is attractive with a price-earnings to growth ratio of 1.5, on S&P's 2002 estimate, compared to a 2.3 multiple for peers; and a 1.4 multiple based on S&P's 2003 estimate, in line with peers. S&P continues to like profitable biotechs with good growth outlooks, such as Chiron.

Shaw Group (SGR ): Reiterates 3 STARS (hold)

Analyst: Stewart Scharf

Shaw posted August quarter EPS of $0.70 vs. $0.45, in line. But with the cyclical downturn in the power generation market, Shaw revised its guidance for fiscal 2003 (Aug.) EPS to $1.92-$2.08 from $2.72-$3.00, and revised its revenue to $2.8 billion to $2.9 billion from $3.3 billion to $3.8 billion. The backlog rose 25% in fiscal 2002 to $5.6 billion from a year ago. S&P still expects clean air emissions regulations to aid bookings over the next two years. But based on fewer power projects, S&P has cut its fiscal 2003 (Aug.) EPS estimate by $0.70, to $1.95. At 5.9 times S&P's estimate, shares are trding sharply below the price-earnings for S&P's SmallCap 600.

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