S&P Says Accumulate Pfizer

Pfizer (PFE ): Maintains 4 STARS (accumulate)

Analyst: Herman Saftlas

Pfizer plans a sale of its Adams confectionary unit (sales of $1.9 billion) to Cadbury Schweppes for $4.2 billion. S&P views the deal as in-line with Pfizer's strategy of divesting its less profitable non-core products. The Schick Wilkinson shaving business (sales of $716 million) is next in line for divestiture.

The planned acquisition of Pharmacia is likely to be pushed into the first quarter of 2003, pending resolution of EU regulatory issues. S&P sees earnings per share of the combined firm growing in the high teens over 2002 through 2004. The drug giant is valued in line with peers based on a price-earnings multiple, but trades at deep discount on a price-earnings-to-growth basis.

Electronic Arts (ERTS ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Jonathan Rudy, Richard Stice

Despite S&P's favorable opinion of Electronic Arts, with further disappointing news coming out of the video game sector, S&P believes that the company could be vulnerable to near-term earnings pressure. However, with catalysts such as the recent releases of the Lord of the Rings sequel and Sims Online, S&P thinks Electronic Arts should continue to take market share. With the leading market share on the primary hardware console, PlayStation 2, more than $800 million in cash and investments, and no debt, S&P thinks the shares remain attractive.

Dime Community Bank (DCOM ): Initiates with 3 STARS (hold)

Analyst: Erik Eisenstein

This thrift bank, which operates under the Dime Savings Bank name, has 20 branches in Brooklyn, Queens and Long Island and focuses on the increasingly competitive New York apartment lending market. Notwithstanding, relative to single-family lending, S&P thinks this focus offers better risk-adjusted returns. Coupled with its room to grow in the attractive New York retail banking market, S&P sees Dime's long-term growth prospects as above average. However, shares are trading at 11 times S&P's 2003 earnings per share estimate of $1.79, above most thrifts, and Dime seems fairly valued.

Citigroup (C ): Reiterates 5 STARS (buy)

Analyst: Stephen Biggar

The diversified financial services company announced a $1.3 billion fourth quarter charge related to the settlement of research and investment banking practices, as well as $200 million of added credit costs related to bankruptcies. S&P thinks the settlement removes a major regulatory cloud that hung over the company in 2002. Citigroup is not immune to the commercial credit quality difficulties being faced by the industry. S&P is lowering its 2002 operating earnings per share estimate by five cents, to $2.85 to account for the added loss provision, and is keeping 2003 estimates at $3.40. Shares are trading at a substantial discount to Citigroup's historical valuation range.

Charter Communications (CHTR ): Maintains 3 STARS (hold)

Analyst: Tuna Amobi

Charter said Monday that it terminated its chief operating officer David Barford, replacing him with Margaret Belville. Charter also fired chief financial officer Kent Kalkwarf, named chief administrative office Steve Schumm as interim replacement, and says it plans key compliance changes soon. S&P says the changes are not surprising in light of ongoing reaudits of the company's 2000 and 2001 financials.

Charter affirmed its 8%-9% fourth quarter revenue growth guidance. Still, the highly leveraged cable operator will likely be a near-term market performer, with its stock already highly depressed amid an ongoing grand jury probe and the imminent financial restatement.

Yahoo (YHOO ): Maintains 1 STAR (sell)

Analyst: Scott Kessler

Internet media company Yahoo! said it would buy search-software company Inktomi for $235 million, an all-cash deal that Yahoo hopes will bolster its search business. One-time high-flier Inktomi is a pioneer in online search technology whose relevance has ebbed somewhat due to heightened competition from the likes of Google. The deal makes some strategic sense, and doesn't appear costly at only 2.1 times Inktomi's fiscal 2002 (Sept.) revenues. However, the acquisition will likely be dilutive to Yahoo's 2003 earnings. With 2003 price-earnings and price-earnings-to-growth ratios far in excess of peers and the S&P 500, S&P sees Yahoo as overvalued.

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