S&P Upgrades ImClone to 'Hold'

ImClone Systems (IMCLE ): Upgrades to 3 STARS (hold) from 1 STAR (sell)

Analyst: Frank DiLorenzo

Shares have rallied over the past week, going into this weekend's American Society of Clinical Oncology (ASCO) meeting. News of a $6 million payment from Merck KgaA also aided the share price. S&P thinks that about $450 million in peak U.S. Erbitux sales is already embedded in the market capitalization, even though the drug is not approved in the U.S. While S&P remains cautious on the shares due to volatility, S&P thinks ImClone and several other emerging names could move sharply up or down based on upcoming ASCO data; overall, S&P is now neutral on the shares.

IMC Global (IMC Global ): Maintains 4 STARS (accumulate)

Analyst: Richard O'Reilly

IMC Global will indefinitely shut down all of its Louisiana phosphate fertilizer capacity, which now is running at about a 65% rate. Louisiana accounts for nearly 45% of IMC Global's total phosphate capacity. While it's not unusual to have summer plant shutdowns, IMC Global last fully closed its Louisiana capacity in January 2001, with a partial restart in August 2001. S&P expects related idle plant costs to be higher than the current $10 million annual rate; IMC Global had $40 million of such costs in 2001. S&P is cutting the 2003 operating estimate to 20 cents, from 30 cents, excluding currency losses. S&P continues to view view IMC Global as attractive.

Inamed (IMDC ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Robert Gold

S&P believes the company's fundamental strengths in cosmetic surgery, morbid obesity and other markets will lead to 2003 revenue growth of 17% and similar expansion in operating earnings per share, to $2.40. However, S&P thinks the stock's valuation now fully reflects both S&P's 2003 growth assumptions and optimism regarding the receipt of FDA approval for a silicone gel-filled breast implant. At 20 times S&P's 2003 earnings per share forecast, Inamed is priced about 17% above peers. On price-to-sales, the premium exceeds 30% and further valuation expansion looks challenging.

JetBlue Airways (JBLU ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: James Corridore

S&P believes that although the airline industry environment remains challenging, the worst is likely over. S&P sees pent-up demand for travel, and this, plus government actions to temporarily remove security fees on tickets, should help pricing power. S&P views JetBlue, with its low costs, as the best positioned to pass higher fares to the bottom line. At 31 times S&P's 2003 earnings per share estimate of $1.13 and 24 times the 2004 estimate of $1.47, JetBlue shares are at premium to the S&P 500. However, S&P projects a 35% earnings per share growth rate over the next five years, and believes this should drive superior price appreciation.

UTStarcom (UTSI ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Ari Bensinger

The stock is close to S&P's $29 price target, based on shares trading at 19 times S&P's 2003 earnings per share estimate of $1.51, which is in line with the peer average. With a March-quarter book-to-bill over two, UTStarcom is experiencing excellent sales visibility. However, S&P expects the Chinese government to award a 3G license to China Netcom and Unicom, UTStarcom's primary customers, during 2004. S&P expects a fully mobile 3G system to hamper the long-term growth prospect for UTStarcom's core PAS non-roaming access system. Accordingly, S&P is taking a less positive stance, despite UTStarcom's strong operating momentum.

EBay (EBAY ): Maintains 3 STARS (hold)

Analyst: Scott Kessler

After Tuesday's close, eBay was found by a federal jury to have infringed upon patents held by privately-held MercExchange, and ordered to pay $35 million in damages. This sum is a fraction of eBay's recent $2 billion in net cash and investments, and S&P expects the company to appeal. However, this decision is potentially significant. The damages could be tripled based on an assessment of willful conduct, and eBay could be forced to alter some of its fixed-priced offerings. For participation in the Internet sector, we prefer USA Interactive.

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