Hold AOL Time Warner

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

Analyst: Tuna Amobi

The stock is down Wednesday following a Washington Post report of a widened scope of ongoing government probes into potential accounting irregularities. The new disclosures key in on "aiding and abetting" by two former AOL dealmaking executives; of accounting improprieties at certain firms that AOL had dealt with, notably Homestore Inc., which itself is subject to ongoing government scrutiny; and shareholder claims. With key unrelated operational challenges ahead, these accounting uncertainties should further restrain the near-term stock performance of this beleaguered media giant.

Nash Finch (NAFCE ): Maintains 2 STARS (avoid)

Analyst: Joseph Agnese

Nash Finch shares are up significantly after the company received a favorable response from the Securities and Exchange Commission in regard to an investigation of some of its vendor allowances practices. The SEC is continuing its investigation into administration charges that Nash assessed on supplier discounts. The food and retail chain-store operator is now able to release its third and fourth quarter, which were delayed after the SEC investigation was announced in October 2002. While the news removes one uncertainty, S&P is maintaining a cautious outlook and is keeping estimates under review to reflect poor earnings visibility and the competitive retail food environment.

Jabil Circuit (JBL ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Richard Stice

S&P thinks Jabil is taking appropriate steps to deal with the persistent slowdown in IT spending. The recent acquisition of a division of Royal Philips Electronics is providing product diversification away from the difficult telecom market. In addition, Jabil continues its ongoing production shift to lower-cost regions. Based on S&P's calendar 2003 earnings per share estimate of 82 cents, Jabil shares trade at a price-earnings-to-growth rate of 0.7, vs. the broader market's 1.2. Moreover, S&P's discounted cash flow analysis yields an intrinsic value of $21. Given its solid execution and an attractive valuation, S&P says accumulate Jabil.

Altera (ALTR ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Thomas Smith

The chip-equipment maker updated its guidance to 4% revenue growth from the first quarter to the fourth quarter, above the prior range of -2% to 2% revenue growth. Sales improvement for this fabless maker of programmable logic device chips meshes with the stronger activity S&P has observed at Asian foundries. S&P is raising its 2003 estimate to 35 cents from 32 cents, but is keeping the 50 cents estimate for 2004. The price earnings multiple of 33 times S&P's 2003 estimate and 23 times the 2004 estimate puts the stock price above the market but in-line with peers. One negative: The company reported an options expense of 22 cents in 2002, and S&P sees 18 cents in options expenses for both 2003 and 2004. Still, Altera is in a good market position for an industry cycle that S&P sees rising into 2005.

Computer Sciences (CSC ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Richard Stice

Computer Sciences is benefiting from the growing outsourcing trend, which now accounts for more than half of its revenues. The acquisition of DynCorp should result in new deals within the federal government sector. Computer Sciences sees its federal market prospects in excess of $20 billion over the next two years. Its shares trade at a steep discount to the broader market on price-earnings and price-earnings-to-growth basis, and below the historical price/sales average. Given the end-market opportunities and attractive valuation, S&P sees Computer Sciences outperforming the broader market over the next 6 to 12 months.

AnnTaylor Stores (ANN ): Reiterates 1 STAR (sell)

Analyst: Yogeesh Wagle

AnnTaylor reported January quarter earnings per share of 35 cents, vs. 23 cents, excluding one-time charges. Net sales fell 5.2% on same-store declines of 14.6% for Ann Taylor and 7.1% for Ann Taylor Loft concepts. Gross margin improved on more full-priced sales and better inventory management. However, AnnTaylor cut its fiscal 2004 (Jan.) first quarter earnings per share guidance to 39 cents to 41 cents, from 45 cents to 47 cents. S&P thinks slowing mall-traffic and low consumer confidence will continue to impact same-store sales. Although shares are trading at only 11 times S&P's $1.74 fiscal 2004 earnings per share estimate, S&P would sell the shares, given weakening sales trends.

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