S&P: Still Hold Krispy Kreme

Plus analysts' opinions on Rayovac, Eastman Chemical, and more

Krispy Kreme Doughnuts (KKD ): Reiterates 3 STARS (hold)

Analyst: Dennis Milton

Krispy Kreme says it will restate fiscal 2004 (ending January) earnings per share downward by 5 cents to 7 cents to account for certain purchase-accounting issues. Fiscal 2005 quarterly statements may also be adjusted to reflect operating lease and purchase-accounting problems. The company also notes that its failure to file timely financials may cause issues with the SEC, NYSE, and debt holders. Krispy Kreme remains subject to a formal SEC inquiry. We are placing our fiscal 2005 earnings per share estimate under review as we await more definitive information. But at 8 times our fiscal 2005 free cash flow estimate, well below peers, we would hold existing positions.

Rayovac (ROV ): Reiterates 4 STARS (buy)

Analyst: Howard Choe

Rayovac agrees to acquire United Industries, a maker of lawn, garden, and pet supplies with nearly $1 billion in sales, for $1.2 billion in cash, stock and assumed debt. It will issue 13.75 million shares of stock. The deal is projected to close in February, subject to approvals, and Rayovac expects it to be slightly accretive in 2005 and yield $70 million to $75 million in gross synergies over three years. While United's categories are new to Rayovac, we have confidence in the planned deal, given Rayovac's well-executed integration of Remington. The proposed deal should further diversify Rayovac's revenue base and add faster-growing categories.

Eastman Chemical (EMN ): Maintains 3 STARS (hold)

Analyst: Richard O'Reilly, CFA

Eastman Chemical warns that operating earnings per share for the just completed fourth-quarter will come in below its previous guidance of 42 cents to 63 cents. Our estimate was 47 cents and the Street's was 59 cents. Eastman Chemical says a greater-than-expected rise of over $100 million in raw material costs from the third quarter more than offset strong volumes and increased selling prices. We are lowering our full 2004 earnings per share estimate to $2.45 from $2.60, but are keeping our below-Street 2005 estimate at $3.00. We expect further price hikes to offset raw material costs in the early part of the new year, and we are keeping our 12-month target price of $56.

Assurant Inc. (AIZ ): Reiterates 3 STARS (hold)

Analyst: Gregory Simcik, CFA

Assurant registers to sell up to 27.2 million shares held by former parent Fortis Insurance N.V. The filing also indicates that Fortis plans to sell bonds potentially exchangeable into AIZ shares. We estimate Fortis holds roughly 36% of Assurant shares and will have at least 23 million shares, or at least a 16% stake, following the offering, with some of the remaining shares backing the new bonds. We believe the stock sale could put short-term pressure on Assurant share price. However, we also think the bond sale may help lessen the impact of future offerings of Fortis' Assurant holdings.

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