S&P Upgrades Flextronics to Buy

Flextronics (FLEX ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Richard Stice

S&P thinks Flextronics is the electronic manufacturing services company that is best positioned to benefit from the growing outsourcing trend. The company continues to gain market share and has established strong footholds in low-cost geographies, from which it generates about two-thirds of its revenue. Flextronics is at a discount to peers, to its historical average price-to-sales level, and to its intrinsic value based on S&P's discounted cash flow analysis. S&P has a 12-month price target of $17. With its favorable industry position and attractive valuation, S&P says buy Flextronics.

Vodafone (VOD ): Maintains 4 STARS (accumulate)

Analyst: Todd Rosenbluth

S&P was a little surprised that Vivendi decided to preempt Vodafone's bid for ownership control of French telephone carrier Cegetel. However, S&P did not account for the majority ownership in its fiscal 2004 (March) estimates. As the world's largest wireless carrier, S&P is awaiting Vodafone's late December launch of 3G services in Japan and expects demand for its European data services to grow in the near term. S&P still finds Vodafone attractive relative to its European peers on a price-earnings basis and given the less competitive pressures than its U.S. brethren.

Nokia (NOK ): Maintains 2 STARS (avoid)

Analysts: Ari Bensinger, Scott Kessler

Nokia on Tuesday said it expects mobile handset shipments of 400 million in 2002 and about 440 million in 2003. S&P had projected 410 million in 2002 volume and up to 15% growth in 2003. The company also anticipates declines in the wireless infrastructure market and its addressable opportunity in this area through 2003. Given the premium price-to-sales multiple for Nokia shares as compared with peers in an uncertain wireless demand environment, S&P continues to expect Nokia shares to underperform the S&P 500.

AOL Time Warner (AOL ): Reiterates 3 STARS (hold)

Analyst: Thomas Graves

The stock is down sharply Tuesday after the company says it expects EBITDA from its AOL division will decline 15% to 25% in 2003. S&P was already looking for such a decline. In S&P's view, the larger issue is whether the AOL division can be a growth engine in 2004 and beyond. S&P is skeptical of the extent that AOL's Internet business will be turned into a pay channel for broadband users. Also, S&P expects investigations by regulators to weigh on the stock. On an enterprise-value basis, S&P sees the company at an appropriate sharp discount to Viacom.

Hain-Celestial (HAIN ): Reiterates 4 STARS (accumulate)

Analyst: Richard Joy

Health food company Hain acquired privately held Imagine Foods, a leading non-dairy beverage company with approximately $70 million in sales. S&P views the deal favorably, as it strengthens Hain's position in the fast growing rice and soy milk beverage categories. The transaction is accretive, so S&P is raising its fiscal 2003 (June) earnings per share estimate by a penny to 82 cents, and is upping the fiscal 2004 earnings per share estimate by five cents to $1.05. Given the strong balance sheet, and Hain's growth and takeover potential, S&P thinks shares are attractive at 16 times its calendar 2003 earnings per share estimate of $0.90, in line with a price-earnings multiple for the S&P 600 Index.

UAL Corp. (UAL ): Maintains 2 STARS (avoid)

Analyst: James Corridore

The parent company of United Airlines is invoking a grace period on $375 million in debt that was due on Monday, giving them until Dec. 16. However, this puts them in noncompliance with $545 million in other debt. S&P thinks UAL would have been foolish to make a payment until after the machinists' union votes on Thursday, when a 'No' vote means certain bankruptcy. UAL also gets time for feedback on the likelihood of approval of its application for a $1.8 billion federal loan guarantee. Concessions by all work groups are contingent upon approval by Dec. 31, which S&P feels is far from assured, even if the machinists vote 'Yes.'

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