S&P Upgrades Lexmark to Accumulate

Lexmark International (LXK ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Megan Graham Hackett

Based on S&P's valuation models, S&P sees about a 15% upside in the printer maker's shares. S&P's discounted cash flow and price/sales analyses yields a 12-month target price of $75. Assumptions in the discounted cash flow model include a weighted average cost of capital of 13.4%, and free-cash flow growth for the next five years of 10%. S&P notes there may be some headwinds over the next few months from recent Hewlett-Packard product launches, but believes Lexmark's strong free cash flow growth can be sustained. Patient investors should be rewarded.

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

Analyst: Yogeesh Wagle

Home-goods retailer Bed & Bath reported August-quarter earnings per share of 32 cents, vs. 25 cents, which was 2 cents above S&P's estimate. Sales grew 23%, fueled by new store openings and a successful back-to-school season. Same-store sales rose 5.9%, better than expected. S&P is raising the fiscal 2004 (Feb.) earnings per share estimate to $1.28, from $1.26, and fiscal 2005's to $1.56, from $1.52. At a price-earnings-to-growth of 1.2, based on the fiscal 2005 estimate -- below the S&P 500 -- S&P thinks Bed & Bath is attractive. But S&P thinks out-of-favor home goods peers limit upside, and is lowering the 12-month target price to $46, from $48 -- still a hefty premium to peers for this better-executing retailer.

Federal Signal (FSS ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: James Sanders

Shares of this specialty truck maker are down approximately 12% today on news that it is lowering its third-quarter and 2003 guidance. After listening to the conference call, S&P still believes that weak municipal spending, due to lower tax receipts, will likely continue to affect the company's results for the near term, at least. However, S&P maintains that management is making the right maneuvers to control costs and generate strong free-cash flow. Moreover, S&P's intrinsic value models indicates a 12-month target price of approximately $20.

Eastman Kodak (EK ): Maintains 1 STAR (sell)

Analyst: Richard Stice

Eastman Kodak announced a new strategy in an attempt to grow its digital operations. The company expects to spend up to $3 billion on investments and acquisitions as it targets $16 billion as its 2006 revenue goal (S&P's 2003 revenue estimate is $12.9 billion). Further, Kodak is reducing its semi-annual dividend, from 90 cents, to 25 cents, in order to enhance its financial flexibility. S&P believes these moves are prudent but also overdue. Moreover, S&P is concerned about execution risk, Kodak's industry position, and competitive threats within the digital marketplace. S&P's 12-month target price is $21.

Tupperware (TUP ): Maintains 1 STAR (sell)

Analyst: Howard Choe

Due to weaker-than-expected sales in North America, Tupperware has again lowered its 2003 earnings per share guidance, now to a range of 76 cents to 81 cents, from $1.05 to $1.10. Recruitment efforts have not gained traction heading into Tupperware's crucial fourth quarter. Of additional concern to S&P is the tough comparisons facing Tupperware's sole healthy region, Europe. S&P is lowering the 2003 earnings per share estimate to 81 cents, from 93 cents, but is keeping the $1.02 for fiscal 2004. S&P views Tupperware shares as overvalued. S&P sees few catalysts for the stock, which is trading at a premium to S&P's 12-month target price of $12 (derived from a forward p-e of 12).

Freddie Mac (FRE ): Maintains 2 STARS (avoid)

Analyst: Erik Eisenstein

Mortgage finance giant Freddie Mac now expects to finish its previously announced restatement in November, rather than during the third quarter. It also sees the cumulative increase in retained earnings to be at or above $4.5 billion, the upper end of the previous $1.5 billion to $4.5 billion range. Since S&P believes the absence of restated financial results has been one of the larger uncertainties surrounding Freddie Mac, and views the extension of that uncertainty negatively, as well as the absence of any new upper boundary for the cumulative increase. S&P would continue to avoid the shares.

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