S&P Says Avoid Healthsouth

Healthsouth (HRC ): Reiterates 2 STARS (avoid)

Analyst: Phillip Seligman

The New York Stock Exchange suspended trading in Healthsouth, and will apply to the SEC to delist the stock after it completes applicable procedures, which include any appeal by the company. This follows the SEC's order to halt trading on Mar. 19, and has been maintained by the NYSE. The NYSE's decision is based on ongoing government investigations into Healthsouth's accounting practices and its statement that its previously filed financial statements should not be relied upon. If delisted, Healthsouth might continue to trade over-the-counter, but its value is questionable, given the possible Chapter 11 bankruptcy if outside funding is unavailable.

Sonic (SONC ): Maintains 2 STARS (avoid)

Analyst: Dennis Milton

Sonic reported February quarter earnings per share of 20 cents, up 12% from a year ago, before charges, and in line with S&P's estimate. System same-store sales fell 0.2%. The company's results benefited from more stores in operation and share repurchases, which were partly offset by higher operating costs. S&P projects fiscal 2004 (Aug.) earnings per share of $1.43, up 12% from S&P's fiscal 2003 earnings per share estimate of $1.28. Sonic shares are trading at 17 times the fiscal 2004 estimate, well ahead of peers. While S&P likes Sonic's long-term growth prospects, the shares are valued at a premium to their intrinsic value of $19-$21, based on S&P's cash flow model.

McCormick & Co. (MKC ): Reiterates 4 STARS (accumulate)

Analyst: Richard Joy

The spice maker posted February quarter earnings per share of 25 cents vs. 24 cents -- a penny below S&P's estimate. The shortfall reflects competitive pressures, higher raw material costs and an adverse foreign exchange impact, all related to a Mexican joint venture. Despite tough comparisons, profits gained 5% in the consumer segment, and 4% for the industrial segment. The packaging segment produced a 15% profit gain. McCormick sees fiscal 2003 (Nov.) sales growth at the top of the prior 3%-7% target range. S&P is trimming the fiscal 2003 earnings per share estimate by a penny, to $1.43 -- a 10% gain. McCormick's dominant market position and improving volume/margin trends makes shares attractive.

Airborne (ABF ): Maintains 3 STARS (hold)

Analyst: James Corridore

The package-delivery company agreed to sell its ground business to DHL, a subsidiary of Germany's Deutsche Post. Airborne shareholders will receive $21.25 a share in cash -- a 27% premium to Friday's closing price, before news of the possible sale was announced. In addition, shareholders will get one new share of ABX Air, Airborne's air freight company, which will be spun off as a separate company. This is good news for shareholders and a good fit for DHL, which gets a stronger presence in the U.S. S&P doesn't see a strong future for ABX Air however, as without a ground business to support it, S&P thinks it will have difficulty competing with larger peers.

UnumProvident (UNM ): Maintains 2 STARS (avoid)

Analyst: Stephen Biggar, Catherine Seifert

The disability and life insurer announced it is restating its 2000 to 2002 reported net income lower by a total of $29.1 million to resolve SEC comments relating to the value of securities previously viewed as other than temporarily impaired. UnumProvident is continuing to seek SEC approval for its capital-raising plan. S&P views the resolution as a short-term net positive. But with lingering concerns about the company's financial condition, the security of its dividend and in a weakened business environment, S&P would avoid the shares.

Union Pacific (UNP ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: James Corridore

The operator of Union Pacific Railroad, the largest railroad in North America, says first quarter earnings per share will be in the range of 58 cents to 60 cents, compared with current Street's consensus of 69 cents. Results were hurt by fuel prices that rose sharply in March, adverse weather conditions, and tepid revenue growth amid the weak economy. The company also rescinded its full 2003 guidance of $4.30, based on uncertainties related to fuel prices and the Iraq war. S&P is still positive on Union Pacific's diversified revenue base, best-in-industry margins, and long-term outlook. But given the difficult conditions and uncertain outlook, a more cautious view is warranted.

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