S&P Upgrades Corning to Hold

Corning (GLW ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Ari Bensinger

After reviewing the updated financial information provided by Corning at its analyst day on Friday, S&P is narrowing the 2003 loss estimate to two cents from 10 cents, reflecting faster-than-expected cost reductions and the initial recognition of stock earnings from Dow Corning starting in the first quarter of 2003. S&P expects the Street will significantly narrow the average 2003 loss estimate of 13 cents in the coming weeks. Corning's liquidity remains solid; the company holds $2.1 billion in cash and access to a $2 billion credit line. With shares trading at 1.2 times the book value, and with an improving outlook, S&P is taking a less negative stance.

Hughes Electronics (GMH ): Maintains 3 STARS (hold)

Analyst: Tuna Amobi

Media reports indicate SBC Communications has expressed an early interest in the DirectTV satellite-TV business of Hughes Electronics, a unit of General Motors. SBC's interest could raise the stakes for News Corp., which also reportedly is in talks with Hughes, and give Hughes more leverage for sweetened terms. News Corp., which became interested in Hughes after regulators blocked a merger between Hughes and Echostar Communications, wants to add Hughes' DirectTV to its satellite-TV subsidiary Sky Global Networks. But S&P is uncertain whether an ultimate deal will include Hughes' struggling businesses, and S&P remains cautious on Hughes shares.

Marriott International (MAR ): Maintains 3 STARS (hold)

Analyst: Thomas Graves

Before some unusual items, the hotel operator posted fourth quarter earnings per share of 55 cents vs. 22 cents -- a penny above the Street's consensus, and in line with S&P's prediction. With an increasingly lackluster near-term outlook for the lodging business, S&P is lowering the 2003 earnings per share estimate to $1.90, from $2.05, after a 31 cents benefit from a synthetic fuel investment but before any major impact from future war or terrorist activity, which could reduce business and leisure travel. In light of the current economic and travel environment, plus near-term risks, S&P views Marriott as adequately priced at a close-to-market price-earnings ratio.

Johnson & Johnson (JNJ ): Reiterates 4 STARS (accumulate)

Analyst: Herman Saftlas

The pharmaceutical giant announced the planned purchase of Scios Inc. for $2.4 billion cash. A merger with J&J will accelerate growth of Scios' key Natrecor treatment for congestive heart failure. S&P sees more than $500 million peak sales potential for Natrecor. Scios' pipeline includes several promising biotech treatments for pain and inflammatory diseases. The deal will dilute J&J's earnings per share by five cents in both 2003 and 2004. But J&J reaffirmed the consensus $2.62 2003 earnings per share guidance, with a shortfall offset by better-than-expected results from its Cypher drug-coated stent and other lines.

SBC Communications (SBC ): Maintains 2 STARS (avoid)

Analyst: Todd Rosenbluth

S&P suggests caution towards SBC amid reports the Bell may bid for Hughes Electronics, owner of DirectTV. While talks are still in the early stages, S&P thinks SBC's efforts to diversify and combat its emerging cable competitors would be unwarranted. Even as the company's wireline and wireless revenues remains challenged due to increasing competition, S&P says it's unclear that there's enough synergies to make such a dilutive deal work. Also, S&P is awaiting the Federal Communications Commission's decision on unbundled network element-platform (UNE-P) rules, a controversial resale method that allows AT&T, MCI, and smaller companies to provide local phone service at a cost determined by state regulators. The FCC is scheduled to issue new rules this week, but until then, S&P would steer clear of SBC. Shares are trading at a price-earnings multiple of 15 based on S&P's 2003 estimate of $1.64, and at an enterprise value-to-EBITDA ratio that is above its peers.

Cal Dive (CDIS ): Maintains 3 STARS (hold)

Analyst: Leo Larkin

Shares of this energy services company are down sharply on news that fourth quarter will be at breakeven, hurt by reserves for disputed billings and other litigation. The Street had expected 19 cents earnings per share. S&P cut its 2002 earnings per share estimate to 38 cents from 60 cents, but is leaving the $1.25 estimate for 2003 unchanged. Cal Dive appears attractively valued on 2003's earnings per share estimates, given its strong revenue growth. But S&P recommends against adding to holdings, given the company's negative free-cash flow and some dilution from a recent convertible preferred offering.

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