S&P Says Buy IBM

Also: analysts' opinions on Estee Lauder and Adtran

IBM Corp. (IBM ): Reiterates 5 STARS (buy)

Analyst: Megan Graham Hackett

The Wall Street Journal reported today, based on unnamed sources, that the SEC and Justice Department have launched inquiries, but not formal investigations, into a case that claims there was bribery tied to IBM's South Korean unit. IBM has not yet disclosed such an investigation, but S&P believes it is reasonable to assume one is underway. Still, S&P believes the alleged fraudulent actions associated with IBM's South Korean unit are an isolated case and that the company responded quickly and responsibly. S&P believes that with the shares trading below the $113 target price, IBM remains attractive.

Estee Lauder (EL ): Reiterates 4 STARS (accumulate)

Analyst: Howard Choe

William Lauder, the grandson of Estee Lauder's founder, will replace longtime executive Fred Langhammer on Jul. 1. While S&P isn't totally surprised, given the family link and his rise through the ranks, S&P thinks Langhammer has performed well over the years. S&P thinks the cosmetic company's five-year plan set in Sep. 2002 will remain intact despite the news, and remains positive on the company's outlook amid an improving economy. S&P also views Estee Lauder as attractive now at a discount to the 12-month target price of $44 derived from a blend of relative and discounted cash-flow analyses.

Adtran (ADTN ): Reiterates 3 STARS (hold)

Analyst: Ari Bensinger

Adtran sees fourth-quarter sales at $113 million and earnings per share of 24 cents to 25 cents, above the prior guidance of $104 million to $107 million, and 20 cents to 21 cents per share. The company attributes the upside to strong enterprise demand and continued market share gains. S&P is raising the 2003 earnings per share estimate to 75 cents, from 71 cents, and 2004's to 93 cents, from 87 cents. S&P sees impressive operating momentum, but remains concerned that access concentrator ports are greatly exceeding digital-subscriber line subscription growth. S&P is raising the 12-month target price to $37, from $35, based on S&P's 20% long-term earnings per share growth forecast and a peer average price-earnings-to-growth multiple of 2.

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