S&P Says Accumulate Bed & Bath

Bed Bath & Beyond (BBBY ): Maintains 4 STARS (accumulate)

Analyst: Yogeesh Wagle

S&P believes Bed & Bath's announcement of a $200 million cash acquisition of Christmas Tree Shops should complement the Bed Bath & Beyond concept, leverage its distribution and buying capabilities and diversify its revenue base a bit. Christmas Tree, with 2002 revenues of about $370 million, operates a 23-store chain in the Northeast, selling home decor, giftware, and housewares. While Bed & Bath's May-quarter sales grew 15%, less than expected, earnings per share of 19 cents, vs. 15 cents, was in line. At a p-e to growth of 1.3 on the $1.24 earnings per share S&P sees for fiscal 2004, below that of the S&P 500, S&P sees Bed & Bath as worth accumulating.

Darden Restaurants (DRI ): Maintains 4 STARS (accumulate)

Analyst: Dennis Milton

The May-quarter earnings per share of 35 cents, vs. 40 cents, is 2 cents below S&P's estimate. Same-store sales grew 0.9% at Red Lobster units and 0.1% at Olive Garden units. Results were hurt by higher labor and restaurant operating costs, which were partly offset by share repurchases. Full-fiscal 2003 (May) earnings per share was $1.31, up 2 cents from a year ago, before one-time items. At only 13 times S&P's fiscal 2004 earnings per share estimate of $1.45, Darden's shares trade at a discount to its peers and the overall market. S&P believes this valuation ignores Darden's strong growth prospects and the favorable long-term fundamentals for the casual dining industry.

General Motors (GM ): Maintains 3 STARS (hold)

Analyst: Efraim Levy

GM announced a plan to sell about $10 billion in debt securities and convertible debentures, and raised its cash generation target for 2003 to $20 billion, from $10 billion. Proceeds are slated to reduce the unfunded balance on its U.S. pension plans. S&P believes GM is making a reasonable bet that its tax-free pension investment returns will, over time, exceed the after-tax costs of the additional debt. Based on S&P's discounted cash flow analysis, GM has an intrinsic value of about $38 per share.

Solectron (SLR ): Maintains 3 STARS (hold)

Analyst: Richard Stice

The contract manufacturer posted a May-quarter loss, before restructuring, impairment, and deferred tax charges 10 cents, vs. a loss of 4 cents, which is worse than S&P's 2-cent loss estimate (the GAAP loss was $3.74, vs. a loss of 35 cents). Sales declined modestly from the February quarter, as weakness in Solectron's communications segment was largely offset by strength in consumer business. S&P is widening its fiscal 2003 loss per share estimate by 12 cents, to 17 cents. S&P remains cautious given difficult end-markets and poor visibility. But S&P thinks the downside is limited, due to Solectron's industry position and with shares trading near the tangible book value.

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