S&P Downgrades Open Text to Accumulate

Open Text (OTEX ): Downgrades to 4 STARS (accumulate) from 5 STARS (strong buy)

Analyst: Scott Kessler

Open Text shares have appreciated notably in recent weeks. S&P continues to be positive on the software company, based on favorable demand for enterprise content-management solutions, market share gains, and an attractive valuation based upon relative and intrinsic analysis. After a reassessment of price-earnings-to-growth multiples of Open Text and its peers, S&P is raising the target price to $52, from $50. However, given S&P's view of somewhat less upside potential on a percentage basis, S&P is now less sanguine and would accumulate the shares.

ImClone Systems (IMCL ): Upgrades to 5 STARS (strong buy) from 4 STARS (accumulate)

Analyst: Frank DiLorenzo

ImClone is trading down Monday despite the FDA's acceptance of its Erbitux biologics license application to treat colorectal cancer, as well as a priority review, which could result in approval by February, 2004. The next important news should be word on an FDA advisory panel meeting by early November. S&P continues to project early 2004 approval of Erbitux, with initial sales of $179 million in 2004 more than doubling in 2005, and peak U.S. sales of $1.5 billion by 2012. S&P still expects profitability in 2005 and is keeping the 12-month target price of $50, based on a net present value analysis.

Rudolph Technologies (RTEC ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Richard Tortoriello

Sales to key customer Intel rose to 54% of Rudolph's total for the first half of 2003, vs. a year ago's 47%. Given continued growth at Intel, high chip fabrication utilizations, and a strong need for yield management tools, S&P expects a significant rise in orders in 2004, and notes that with average prices of $900,000, and quarterly revenues near $14 million, the sale of a few added tools could have big impact on Rudolph's results. S&P sees earnings per share of 12 cents for 2003, 44 cents for 2004, and 75 cents for 2005. S&P's 12-month target price of $28 is based on shares trading at three times the book value, in line with the historical industry average.

Xerox (XRX ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Richard Stice

In S&P's view, copier giant Xerox's turnaround efforts continue to yield positive results, as S&P thinks the company has strengthened its balance sheet, reduced spending, and expanded operating margins. In addition, while near-term spending on office equipment remains lackluster, S&P believes this segment may improve during 2004 as corporate information-technology spending picks up. S&P is raising the 12-month target price to $12, from $8, in order to reflect upwardly revised growth estimates in S&P's discounted cash flow model, which S&P combines with relative price-earnings-to-growth analysis.

Motorola (MOT ): Maintains 3 STARS (hold)

Analyst: Kenneth Leon

Motorola's third-quarter earnings per share of 6 cents is flat with a year ago, before special items, but above S&P's expectations and the Street's expectations. Sales rose 4.5%, driven by stronger handset and specialized wireless system demand. Margins widened from the second quarter, with handsets and semiconductors showing the most improvement. With orders strong, Motorola's earnings per share guidance for the fourth quarter is 11 cents to 15 cents, before special items. S&P will revisit the earnings per share estimate after Motorola's 5 p.m. conference call on Monday. With its share price below peers at 1.2 times S&P's 2004 sales estimate, S&P would hold Motorola.

Countrywide Financial (CFC ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Erik Eisenstein

On Friday Countrywide raised its 2003 earnings per share guidance to more than $15, from $13 to $15. Also, on Monday the company released September data, showing a slight sequential increase in daily application volume. S&P is raising the 2003 estimate to $15.61, from $14.28, and is raising the 2004 estimate to $11.56, from $10.28. S&P thinks Countrywide is benefiting from a still-strong purchase mortgage market and improved servicing results. Also, S&P is raising the 12-month target price to $98, from $87, but with recent appreciation, S&P thinks the upside to the 12-month target price now warrants a hold opinion.

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