Upgrading Genzyme to Accumulate

Genzyme (GENZ ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Frank DiLorenzo

Genzyme's Fabrazyme for Fabry disease and Aldurazyme for mucopolysaccharidosis I will be reviewed by an FDA panel on Jan. 13 and Jan. 15, respectively. S&P feels at least one of these treatments for rare genetic disorders will be recommended for approval. Earlier in the week Genzyme announced fourth quarter revenues of $297 million, $4 million above S&P's forecast. S&P projects 2003 revenues at $1.3 billion, with earnings per share of $1.38 and an annualized earnings per share growth rate of 18% through 2007. On a discounted cash flow analysis and relative to peers, S&P feels Genzyme is moderately underpriced.

MGM Mirage (MGG ): Reiterates 4 STARS (accumulate)

Analyst: Thomas Graves

S&P sees MGM's lowered earnings per share and cash flow outlooks already more than adequately priced into the stock's below-market price-earnings ratio. S&P is reducing its 2002 earnings per share estimate to $1.85 from $2.00, and is trimming 2003's to $2.00 from $2.10. However, S&P looks for MGM Mirage shares to get support from investors focusing on future cash flow and an expected 2003 Atlantic City joint venture casino/hotel debut. In 2003, S&P expects free cash flow uses to include a Las Vegas expansion, debt repayment, and stock buyback. In the next few years, S&P expects MGM or an affiliate to develop a Detroit casino/hotel to replace an interim facility.

Calpine (CPN ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Craig Shere

On Tuesday, Calpine announced a 110-megawatt power sales agreement and noted negotiations for up to 5,000 megawatts of added contracts. Locking in profitable pricing for power sales is essential to Calpine's sustainability. In the third quarter, Calpine announced a 4% increase in 2003 hedged generation. If the company can avoid financial distress from a heavy debt load and weak power margins, long-term returns should be exceptional as growing electric demand soaks up a current surplus in generation supply. With shares trading at just 35% of book value, Calpine's stock should benefit from new contract announcements.

Gateway (GTW ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

The computer company preannounced a fourth quarter shortfall. Gateway sees fourth quarter revenues at $1.06 billion, below the previously reduced guidance of $1.2 billion. The expected loss is also wider, at 18 cents to 19 cents per share, compared with prior guidance of a 13 cents loss, and the Street's mean of a 14 cents loss. It's also lower than S&P's 15 cents loss estimate. Gateway needed to have strong December sales to offset weak PC sales in October and November; its heavy promotional activity hurt margins. The company also says it could post a further hit of three cents a share to fourth quarter earnings, amid a dispute with an unnamed partner. But with shares at the level of cash and investments, S&P says Gateway is O.K. to hold.

Alcoa (AA ): Maintains 4 STARS (accumulate)

Analyst: Leo Larkin

Aluminum manufacturer Alcoa posted fourth quarter earnings per share of 16 cents vs. 17 cents on a 2.3% decline in sales, before charges in both periods. Results are shy of the Street's 25 cents consensus, reflecting deterioration in nearly all units. Compared with the year-ago fourth quarter, losses in the engineered products and other products segments were offset by sharply higher profits in alumina and primary metals. S&P is cutting its 2003 earnings per share estimate to $1.45 from $1.85 to reflect lingering weakness in some key end-markets. S&P continues to like Alcoa amid aluminum industry consolidation and a stronger economy.

Hospitality Properties (HPT ): Reiterates 5 STARS (buy) and Chelsea Property Group (CPG ): Reiterates 5 STARS (buy)

Analyst: Raymond Mathis

Real estate investment trust investors were disappointed when a Treasury Department clarification of the proposed elimination of individual taxes on dividends indicated it will only cover earnings taxed at the corporate level, thus excluding REITs. Nonetheless, S&P likes Chelsea Property's strong earnings and dividend growth, and thinks Hospitality Properties' recent payoff of its line of credit may signal it is close to acquisitions. S&P is keeping its buy opinions on both stocks for superior total return.