S&P Cuts AT&T Wireless to Sell

Host Marriott (HMT ): Maintains 2 STARS (avoid)

Analyst: Raymond Mathis

Marriott posted a fourth quarter loss per share of four cents vs. a 12-cent loss. Although per share funds from operations of 34 cents beat expectations, S&P expected capital gains on dispositions to push GAAP earnings per share into positive territory. Despite relatively easy comparisons, S&P is forecasting a revenue decline in 2003 amid war uncertainties. The stock trades at a discount to net asset value, but Marriott will need to accelerate dispositions to unlock this value. In the meantime, with diminishing likelihood of a meaningful dividend being reinstated, S&P cannot recommend holding the shares.

AT&T Wireless (AWE ): Downgrades to 1 STAR (sell) from 2 STARS (avoid)

Analyst: Todd Rosenbluth

S&P believes investors should sell AT&T Wireless, which upon review of fourth quarter results, has weaker fundamentals than its peer, Nextel. AT&T Wireless' revenue per user is lower, the churn is higher and EBITDA margins are significantly narrower. However, AT&T Wireless trades at a premium on an enterprise value to EBITDA basis and is likely to produce much lower earnings per share in 2003. In addition, on a technical basis, the company is breaking below near-term support, signaling that the stock could head lower over the next few weeks. Despite a relatively strong balance sheet, AT&T Wireless is unattractive.

Tiffany (TIF ): Maintains 3 STARS (hold)

Analyst: Jason Asaeda

January quarter operating earnings per share of 60 cents vs. 58 cents beat the Street by a penny. Sales rose 8%, with worldwide comp-store sales down 1%, driven by a 10% decline in Japan. For fiscal 2004 (Jan.), Tiffany projected projects a low teens percentage increase in sales, and mid-single-digit comp-store sales gains in the U.S. and Japan, and earnings per share of $1.33-$1.38. S&P is reviewing its estimates. Given declining consumer confidence, Tiffany's exposure to the luxury market, and with its shares trading at a premium to peers at 17 times the Street's $1.35 fiscal 2004 earnings per share estimate, S&P would not add to positions until the economy improves.

Tyson Foods (TSN ): Downgrades to 3 STARS (hold) from 5 STARS (buy)

Analyst: Joseph Agnese

In the near term, S&P expects shares to perform in line with the market due to weak international markets and less attractive market prices for poultry amid an oversupply. Significant risks remain from volatile Russian poultry imports and a long-awaited improvement in meat industry supplies. S&P expects profitability to be hampered by continued low pricing in the March quarter and is reducing the fiscal 2003 (Sept.) earnings per share estimate to 85 cents, from 95 cents. However, with longer-term trends intact and shares trading at 11 times S&P's fiscal 2003 earnings per share estimate, below the S&P 500 and peers, shares are O.K. to hold until the environment improves.

Schering-Plough (SGP ): Downgrades to 1 STAR (sell) from 2 STARS (avoid)

Analysts: Robert Gold, Herman Saftlas

Negative news flow continues, as Schering boosted its litigation reserves associated with an investigation into the company's sales, marketing, and clinical trial practices for Intron A, Rebetron, and Temador drugs. As a result of the $150 million reserve increase, Schering restated 2002 earnings per share to $1.34 from $1.42, and notes significant litigation uncertainties remain. S&P sees 2003 revenues dropping 15%-16% on a sharp decline in Claritin sales, and believes downside risks are sizable at nearly 20 times S&P's 2003 earnings per share forecast of 90 cents (83 cents after an estimated option expense).

Amgen (AMGN ): Reiterates 5 STARS (buy)

Analyst: Frank DiLorenzo

Amgen's business review was positive, with a forecast of 25%-27% earnings per share growth through 2005. Growth will be driven by Aranesp, Neulasta, and Enbrel. Amgen should file for FDA approval of Enbrel to treat psoriasis and Cinacalcet HCI for secondary hyperparathyroidism by the end of 2003. S&P thinks past acquisitions of Immunex and Kinetix have facilitated a buildup of Amgen's R&D engine that will feed its future pipeline. S&P still estimates proforma earnings per share of $1.78 in 2003, but is raising the 2004 estimate to $2.20, from $2.11. On discounted cash flows, S&P considers the shares worth between $60 and $65.

Hewlett-Packard (HPQ ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

H-P posted proforma January quarter earnings per share of 29 cents, two cents ahead of consensus. However, revenues of $17.9 billion were below expectations due to continued weakness in the U.S. commercial business. Earnings per share quality was O.K., with most of the upside from gross margin, aided by improved profitability in personal systems. H-P affirmed the Street's earnings per share estimate of 27 cents for the next quarter and sees revenues staying flat. S&P is upping the fiscal 2003 (Oct.) earnings per share estimate by two cents to $1.16, reflecting the January quarter upside. H-P's price-sales ratio of 0.8 is below the peer-average, but with an uncertain demand environment, S&P says hold the shares.

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