Still Buy Microsoft

Also: Analysts' opinions on Commscope, McDermott, and Chelsea Property Group

Microsoft (MSFT ): Reiterates 5 STARS (buy)

Analyst: Jonathan Rudy

A federal jury in Chicago awarded the University of California and Eolas Technologies $521 million in a patent infringement lawsuit against Microsoft. The suit, filed in 1999, charged that Microsoft had used Eolas' patented technology that allows other mini-applications to work with Microsoft's Internet Explorer. Microsoft says it plans to appeal the decision. While we are disappointed by the news, Microsoft's over $49 billion in cash and short-term investments gives it plenty of cash to cover this decision. We would continue to buy the shares at a discount to our 12-month target price of $32.

Commscope (CTV ): Still 4 STARS (accumulate)

Analyst: Ari Bensinger

Before special charges, Commscope posted a second quarter loss per share of 6 cents vs. a 2-cent loss one year earlier, worse than our 4-cent loss estimate. We believe the downside is totally from larger-than-expected losses on equity interest in fiber company OFS Brightwave. On an operating basis, sales and margins exceeded our expectations. We are widening our 2003 loss estimate to 13 cents per share from 8 cents to reflect losses from the equity interest. However, we expect OFS Brightwave to reach profitability in 2004 on aggressive restructuring steps. Trading at 1.2 times book value, below the average of its industry peers, we view Commscope as attractive.

Chelsea Property Group(CPG ): Upgraded to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Raymond Mathis

Chelsea's second quarter EPS of 56 cents vs. 34 cents one year earlier topped our 48-cent estimate, based on capital gains from dispositions. Operations were in line with expectations, and funds from operations were 81 cents per share vs. 67 cents. Growth came from rent hikes, acquisitions, new developments, and expansions. Customer sales per square foot rose 4%, while occupancy remained robust at 98%. We believe strong metrics will drive internal growth, while portfolio expansion should boost EPS to levels that could lead to a second 2003 dividend hike. We think fundamentals have caught up with the share price. We are raising our 12-month target-price to $50.

McDermott International (MDR ): Downgraded to 1 STAR (sell) from 2 STARS (avoid)

Analyst: Stewart Scharf

McDermott posted a second quarter loss per share of 95 cents vs. a $3.83 loss one year earlier, much worse than our 6-cent loss estimate. Although revenues rose 29% on marine construction volume, results were hurt by losses related to estimated settlement costs for the Babcox & Wilcox unit's Chapter 11 proceedings and the J.Ray unit's marine construction in Argentina. With a cash squeeze impacting J.Ray's operations, McDermott sees negative cash flow through the first half of 2004. The company withdrew its 2003 EPS guidance, given the uncertainty surrounding asbestos legislation, and we are placing our estimates under review. We have a 12-month target price of $3.

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