S&P Says Accumulate Earthlink

Earthlink (ELNK ): Reiterates 4 STARS (accumulate)

Analyst: Scott Kessler

Shares are lower following an article in Tuesday's Wall Street Journal indicating America Online is readying a low-cost Internet service that will debut in early 2004. The service is expected to carry the Netscape name and cost $9.95 a month. Earthlink is one of the few remaining independent Internet service providers, but up until the last year or so, it hasn't focused on the value segment. This news could prompt increased promotional activity leading into and during the holiday shopping season, but S&P expects growth in broadband, not narrowband, to continue to drive results.

State Street (STT ): Maintains 4 STARS (accumulate)

Analyst: Evan Momios, Michael Morgan

State Street posted third-quarter earnings per share of 66 cents before restructuring charges, vs. 56 cents, beating S&P's estimate of 55 cents. Headcount cuts reduced expenses more than S&P expected, and better market conditions supported higher servicing and management fees. S&P thinks State Street should continue to benefit from expense control and better market conditions. and 2004 raised the 2003 earnings per share estimate to $2.25, from $2.11, and the 2004 estimate to $2.60, from $2.41. S&P also is boosting the 12-month target price to $60, from $51, calculated by applying a p-e of 23 -- in line with State Street's three-year average -- to S&P's 2004 earnings per share estimate.

Hughes Electronics (GMH ): Maintains 4 STARS (accumulate)

Analyst: Tuna Amobi

Hughes' third-quarter operating earnings per share of 3 cents was about in line with S&P's 2 cents estimate, but better than the Street's 3 cents loss per share. EBITDA grew 33% from a year ago on revenue up 20% at DirecTV U.S., with 294,000 subscriber additions and higher pricing on the National Football League Sunday Ticket. Hughes Network Systems is also seeing early turn in Directway broadband and DirecTV receivers. Hughes essentially affirmed its key 2003 financial targets. Separately, after a new information request, the Federal Communications Commission has reportedly stopped its 180-day review clock on the pending deal with News Corp.

Gannett (GCI ): Maintains 5 STARS (strong buy)

Analyst: William Donald

Publisher Gannett reported third-quarter earnings per share of $1.03, vs. $0.99, which was 3 cents short of S&P's estimate on 3.9% revenue growth -- slightly weaker than S&P expected. TV advertising revenues fell 6.4% in the absence of 2003's political advertising. Newspaper ads gained 6%, helped by U.K. acquisitions. S&P is shaving 3 cents off the 2003 earnings per share estimate, to $4.53, and is keeping the 2004 estimate at $5.30, up 17%. Share are trading at 18 times S&P's 2003 earnings per share estimate and 15 times the 2004 estimate. Thus, S&P thinks the shares are trading well below peer averages and is raising the 12-month target price to $106 from $94, which still assumes a below-peer-average price-earnings ratio of 20, based on the 2004 estimate.

Merrill Lynch (MER ): Maintains 4 STARS (accumulate)

Analyst: Robert McMillan

Merrill posted third-quarter earnings per share of $1.03, before a 1 cent gain for recovery reversal, vs. 73 cents, well above S&P's 82 cents estimate. Higher principal transactions, growth in underwriting and other revenues, and well-controlled costs helped. S&P expects asset management and commission businesses to begin showing year-over-year improvements for as long as stock market conditions and investor sentiment remains positive. S&P is raising the 2003 earnings per share estimate to $3.78, from $3.40, and is upping 2004's to $4.03, from $3.74. S&P's 12-month target price is being raised to $68, from $61, to reflect improving earnings expectations.

First Data (FDC ): Reiterates 4 STARS (accumulate)

Analyst: Scott Kessler

Before one-time charges, this provider of transaction processing services posted third-quarter earnings per share of 51 cents, vs. 45 cents. This was below S&P's 53 cents estimate but in line with the Street's estimate. First Data's revenues rose 10%, a bit below S&P's projection, as the payment services segment (44% of total) increased 14% compared with S&P's 15.7% forecast, reflecting an acquisition anniversary and euro adjustments. S&P continues to think an improving U.S. economy and the acquisition of Concord EFS, which S&P expects will close in the fourth quarter, subject to approvals, would benefit First Data shares. S&P's target price, based upon intrinsic and historical analysis, remains $51.

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