Downgrading American Express

American Express (AXP ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Robert McMillan

We are lowering our recommendation as the shares hit our $40 valuation target. Even though we continue to believe that AmEx has a strong franchise that has proven its resilience in this weak and uncertain economic environment, we are hard pressed to continue recommending the shares when they are trading at about 17.9 times our 2003 $2.25 EPS estimate, above the S&P 500's 17.3 level and above the company's 12%-15% long term EPS growth target. At this level, we see the shares performing in line with the market.

Vornado Realty Trust (VNO ): Reiterates 5 STARS (strong buy)

Analyst: Raymond Mathis

The REIT posted first quarter EPS from operations of 75 cents, vs. 70 cents, while funds from operations per share grew to $1.15, from $1.06. Top line and bottom line performance improved across all segments. Occupancy rates were firm, while spreads between expiring leases and new leases were positive. Acquisitions, and the absence of unusual non-operating items also contributed to net. The company lowered its capital expenditure, tenant improvement, and leasing commission budget by over $30 million, leaving ample room for a possible 2003 dividend increase. We are raising our 12-month price target to $44.

Hartford Financial Services (HIG ): Reiterates 4 STARS (accumulate)

Analyst: Catherine Seifert

Hartford announced that it plans to take a $1.7 billion after-tax first quarter charge to cover a $2.6 billion boost to its asbestos reserves. The company also plans to raise $1.85 billion in additional capital, and to undergo a restructuring that includes the elimination of 1,500 jobs. We are placing our $4.65 2003 EPS estimate under review, pending Hartford's first quarter earnings release tomorrow. We are encouraged by the company's action to resolve the asbestos issue, but our view is tempered by a concern that the company may have to raise additional capital.

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

Analyst: Todd Rosenbluth

Illinois is moving ahead on legislation that if enacted will likely raise the state's wholesale access rates. We believe this is a modest positive for SBC, which has been losing residential lines in Illinois in part because of the state's low rates, but still see the telco being hurt by wireless and cable competition. However, we are more concerned that, based on the company's 10-Q and adjusting for pension benefits, we estimate SBC's first quarter S&P Core EPS was 28 cents, compared with operating EPS of 42 cents. With the shares trading at an operating earnings multiple above its industry peers, we would steer clear.

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