S&P Cuts Advanced Micro to Sell

Advanced Micro Devices (AMD ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Thomas Smith

Advanced Micro cut the revenue guidance for the June quarter to $615 million, from $715 million. The chipmaker cited lower PC and wireless handset sales in Asia. S&P sees the SARS effect fading in the third quarter but still thinks AMD faces company-specific challenges. Its debt-to-equity of 75% is high, vs. peers. And customer acceptance of the new Opteron chip family has been tentative, in S&P's view. S&P is lowering its 2003 estimate to a loss per share of $1.10 for 2003, from a loss of 80 cents, and is cutting the 2004 estimate to 20 cents earnings per share, from 30 cents earnings per share. AMD is trading below the tangible book value of $6.83, but above a cycle trough level.

FedEx (FDX ): Reiterates 5 STARS (buy)

Analyst: James Corridore

FedEx posted May-quarter earnings per share of 92 cents, vs. 78 cents, beating S&P's 88 cents estimate and the Street's 90 cents estimate. Revenues rose a strong 8%, and margins were aided by international express and domestic ground volumes. FedEx reiterated the $3.00 to $3.15 earnings per share target for fiscal 2004 (May), before the effect of pending employee reduction programs; S&P is keeping its estimate at $3.15. The delivery company reports that June volumes have been sluggish, but it expects -- and S&P agrees -- that the economy should pick up after the August quarter. At 19 times S&P's fiscal 2004 earnings per share estimate, shares are at the low end of the historical p-e range, and also below rival UPS's range.

Liberty Media (L ): Maintains 4 STARS (accumulate)

Analyst: Tuna Amobi

As one of several competing bidders from corporate and investor groups, Liberty reportedly made an offer for Vivendi's film and TV assets, and surprisingly to S&P, Universal Music. Consistent with a strategy recently articulated by Liberty chairman John Malone and CEO Robert Bennett, these assets should mostly complement Liberty's content and distribution operations, though a successful music bid could raise an integration risk. Liberty could fund a deal with its $5.5 billion cash, public securities, and derivatives, but S&P says the pending liquidity situation of QVC, Liberty's home-shopping channel, adds to financing uncertainties.

Corning (GLW ): Maintains 3 STARS (hold)

Analyst: Ari Bensinger

Corning confirmed the prior second-quarter guidance for sales of $715 million to $745 million, with earnings per share in a range of a loss of 2 cents to earnings per share of 1 cent; this is in line with S&P's $718 million sales guidance and a loss per share estimate of 1 cent. S&P thinks Corning will meet its target of returning to profitability in the third quarter, driven by aggressive restructuring actions and strong demand for its liquid-crystal-display glass products. Despite a debt load above the industry average, Corning's liquidity remains solid, with $1.8 billion cash and access to a $2 billion credit facility. At two times the book value -- below peers -- S&P thinks the weak end-market is reflected in the share price.

Medtronic (MDT ): Maintains 4 STARS (accumulate)

Analyst: Robert Gold

In a mid-quarter guidance call, the medical-device maker said it sees fiscal 2004 (Apr.) first-quarter sales of $1.92 billion to $2.06 billion, including an $85 million benefit from currency fluctuations. S&P is boosting its customer-relationship management division sales forecast by $40 million to account for foreign exchange benefits in the pacing area, but S&P's total sales estimate stays at $2 billion, as diabetes looks a bit light. For the full year, S&P sees revenues of $8.7 billion, and earnings per share of $1.62. Medtronic is priced at a slight premium to peers, with a p-e of 31, based on S&P's calendar 2003 earnings per share estimate of $1.57. Furthermore, S&P's discounted cash flow model results in an intrinsic value calculation of $55.

Cincinnati Bell (CBB ): Maintains 2 STARS (avoid)

Analyst: Todd Rosenbluth

Cincinnati Bell announced that it has extended the termination provision in Broadwing CEO Kevin Mooney's contract. With the sale of the Broadwing unit now complete and the transition back to a local telecom carrier under way, Cincinnati Bell tells S&P that its board is presently reviewing the management team. S&P finds this concerning; combined with Cincinnati Bell's lower-than-peers interest coverage ratio and weakening wireless unit, S&P thinks there's risks that aren't reflected in the stock price. Despite poorer fundamentals, in S&P's view, Cincinnati Bell is trading in line with its rural peers on an EBITDA basis.

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