Still Accumulate AIG

American International Group (AIG ): Maintains 4 STARS (accumulate)

Analyst: Catherine Seifert

AIG shares seem to have shrugged news reports that the company's chairman allegedly pressured its NYSE specialist firm to buy more of the company's shares. Although we question AIG's reported assessment that its shares were unduly volatile, we do not fault it for being an advocate for its shareholders. Our view that AIG shares are modestly undervalued, based on a sum-of-the-parts analysis (compared with their historical valuation) remains intact. Our 12-month target price is $70.

Reuters Group (RTRSY ): Downgraded to 2 STARS (avoid) from 3 STARS (hold)

Analysts: Yannick Mathieu, Thomas Graves

We see the company's cost-cutting programs amply reflected in the price of its American Depositary Receipts, up sharply in the past six months. With tough competition from privately owned Bloomberg L.P. and from Thomson (TOC ), we believe it will not be easy for Reuters to halt or reverse its declining revenues. Including restructuring costs, but before exceptional items, we estimate earnings per ADR of 7 cents in 2003, and a loss of 13 cents in 2004. Based largely on our estimate of long-term discounted cash flow, we have a 12-month target price for the stock of $19.

Siebel Systems (SEBL ): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Software maker Siebel expects third-quarter revenues of $320 million to $322 million, below S&P's $328 million estimate, and operating earnings per share of 3 cents, in line with S&P's estimate. The company will book $118 million in restructuring and debt retirement charges in the quarter. Siebel has more than $2 billion in cash and short-term investments, and nearly $4 per share, with no debt. S&P remains concerned about the quality of its earnings and heavy stock-option expenses, along with multiple restructure charges. But S&P sees Siebel's business improving soon and would hold the shares, which are trading below peers at an enterprise value of 2.3 times estimated sales.

Reliant Resources (RRI ): Maintains 5 STARS (buy)

Analyst: Craig Shere

Energy services provider Reliant announced a settlement Thursday evening resolving all remaining Federal Emergency Regulatory Commission-initiated proceedings relating to the California energy crisis. S&P estimates the settlement has an after-tax $25 to $30 million present value -- much less than the proceeds S&P expects Reliant to receive when California finally makes good on unpaid power bills (net of FERC ordered refunds) stemming from the energy crisis. The potential for political change in California could also facilitate a final refund/receivable settlement. Using discounted cash flow analysis, S&P arrives at a 12-month target price of $10.

AmeriTrade (AMTD ): Reiterates 3 STARS (hold)

Analyst: Robert McMillan

Discount online broker AmeriTrade agreed to acquire 11,500 online brokerage accounts from BrokerageAmerica for an undisclosed amount. Both parties plan to close as soon as possible. S&P thinks this planned transaction, after AmeriTrade's acquisition of several other online brokerages, should help it build scale and generate operating efficiencies. S&P is maintaining the earnings per share estimates of 31 cents for fiscal 2003 (Sept.) and 46 cents for fiscal 2004. The target price is $15. S&P sees some price appreciation potential, but cautions that the shares are high risk and susceptible to a pullback in the broader market.

Systems & Computer Technology (SCTC ): Maintains 4 STARS (accumulate)


Following Friday morning's conference call, S&P's opinion hasn't changed on the shares for the e-education software provider. S&P doesn't think management provided enough evidence that the quarter's performance was sustainable. However, S&P is encouraged by the sales performance and is becoming more comfortable with Systems & Computer Technology's outlook. Based on the company's price-earnings-to-growth ratio, and applying S&P's three-year growth expectation of 20% to the fiscal 2004 (Sept.) earnings per share estimate of 74 cents, S&P says a fair value of $15 is implied. S&P's valuation of forecast free-cash flow agrees, and the 12-month target price is $15.

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