Accumulate Coach

Coach (COH ): Maintains 4 STARS (accumulate)

Analyst: Karen Sack

Coach posted September quarter earnings per share of $0.24 vs. $0.14, $0.03 ahead of expectations. Same-store sales rose a stellar 13.2%. Margins were very strong and operating income almost doubled. S&P is raising the fiscal 2003 (June) earnings per share estimate by $0.07, to $1.27, a 35% increase from fiscal 2002. With room for new store growth in the U.S. and in Japan, S&P sees strong earnings gains for the next few years. The balance sheet is pristine and cash flow is strong. Coach shares trade at a premium price-earnings multiple of 24 times the fiscal 2003 estimate, well above its peers and the market.

McDonald's (MCD ): Maintains 4 STARS (accumulate)

Analyst: Dennis Milton

The nation's No. 1 burger chain reported September quarter earnings per share of $0.38, about even with last year, and in line with S&P's estimate. Revenues grew 4.3%, due to expansion, but negative comparable store sales in the U.S., Europe and Asia pressured margins. McDonald's announced it would scale back new store openings in 2003 to concentrate its investment and management focus on improving existing properties. At only 12 times S&P's 2003 earnings per share estimate of $1.59, shares are attractively valued below the overall market despite a history of superior returns on equity.

Andrew Corp. (ANDW ): Upgades to 2 STARS (avoid) from 1 STAR (sell)

Analyst: Ari Bensinger

Before charges, Andrew posted September quarter earnings per share of $0.07 vs. $0.27, at the high end of its $0.02 to $0.06 July guidance (after adding a $0.02 loss from discontinued operations for comparison purposes). Sales were above expectations, aided by strong power amplifier demand from June's acquisition of Celiant. Sales should further benefit from a second CDMA spending phase in China. Recent restructure actions will help maximize free cash flow. Andrew is executing better than peers, but is still overpriced at 39 times S&P's lowered fiscal 2003 earnings per share estimate of $0.22.

Texas Instruments (TXN ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Thomas Smith

The chip making giant posted pro forma earnings per share of $0.09 (GAAP $0.11) vs. a loss of $0.03 ($0.07 GAAP loss) -- a penny below consensus. Revenue rose 22% year over year and 4% quarter over quarter. Orders slowed in recent weeks, sending the book-to-bill ratio below one. Texas Instruments guided revenue down 10% in the fourth quarter from the third quarter, which S&P says is a big disappointment. TI also announced 500 job cuts. S&P is lowering the 2002 pro forma earnings per share estimate to $0.18 from $0.30, and is cutting the 2003 estimate to $0.40 from $0.75. The quality of earnings is nicked by falling assumptions on TI's pension plan return. The shares are trading at more than twice the market's price-earnings multiple based on S&P's 2003 estimate.

TMP Worldwide (TMPW ): Maintains 4 STARS (accumulate)

Analyst: Mark Basham

TMP announced plans to spin off its e-resourcing and executive search units. S&P thinks TMP will have a more highly focused business plan, centered on its unit and related businesses, without its executive and middle-manager recruitment businesses. The units to be divested are not market leaders in their respective segments. The divestiture is expected to be completed in the first quarter of 2003. S&P is raising its 2003 estimate to $0.95 from $0.90. The discounted cash flow-based intrinsic value for TMP is seen at $16-$18.

Veritas Software (VRTS ): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Veritas posted third quarter earnings per share of $0.14 vs. $0.12, excluding amortization -- a penny above estimates. Revenues increased 8%, also above estimates. S&P believes that the storage software company continues to take market share, and sees low double-digit revenue growth in 2003. Due to a challenging IT spending environment, S&P is trimming its 2002 and 2003 operating earnings per share estimates to $0.58 and $0.67. On a cautionary note, option expenses would have had a negative impact of $0.73 in 2001. However, with $2.1 billion in cash and investments, little debt, and strong company execution, S&P would hold the storage leader.

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