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|  | APRIL 2, 2004
 S&P STOCK PICKS & PANS S&P Says Hold Sun Microsystems Also: analysts' opinions on Gateway and Boeing. Plus more... Sun Microsystems (SUNW ): Reiterates 3 STARS (hold) Analyst: Megan Graham-Hackett Sun preannounced March-quarter results, a restructure, plus a patent settlement and 10-year technology deal with Microsoft. It sees revenue of $2.65 billion, and a loss per share of 6 cents to 8 cents before charges, vs. S&P's estimated $2.9 billion in revenue and a 2 cents loss per share. Sun set a headcount cut of 3,000, or 9%, and will close facilities. It is expected to cut R&D and selling, general, and administrative spending by $500 million in fiscal 2005 (June). The Microsoft pact was the only surprise, and S&P thinks it reflects a more customer-responsive Sun. S&P is widening the fiscal 2004 loss per share estimate by 8 cents, to 22 cents. But with shares trading in line with peers at a price-sales ratio of 1.4, and with $5.5 billion in cash and short-term investments, S&P sees Sun as worth holding. Gateway (GTW ): Reiterates 3 STARS (hold) Analyst: Megan Graham-Hackett Gateway announced it plans to close down its network of 188 company-owned retail stores by Apr. 9. While Gateway's retail stores offered the company a unique sales channel, S&P believes the associated costs made it difficult for the PC maker to be profitable in the highly competitive PC market. In addition, with the acquisition of eMachines, S&P thinks Gateway has the ability to capitalize on new distribution channels. Gateway offered few details, and it's saving the discussion for its first-quarter 2004 earnings per share conference call on Apr. 29. With shares trading well below peers at a price-sales ratio of 0.5, S&P believes Gateway is worth holding. Boeing (BA ): Reiterates 3 STARS (hold) Analyst: Robert Friedman With the announcement from the General Accounting Office that it has doubts about the efficacy and cost structure of Boeing's $22 billion Future Combat Systems program, S&P believes the program is vulnerable to large cutbacks. The GAO's assessment underscores S&P's belief that military contracts are always vulnerable to cutbacks, or even outright cancellation. However, S&P has already discounted its view of the industry's mediocre economics in its free cash-flow models. Though Boeing trades at a discount to S&P's $50 discounted cash-flow-based target price, S&P believes the stock price still warrants a hold opinion on the shares. Walgreen (WAG ): Maintains 5 STARS (buy) Analyst: Joseph Agnese Walgreen reported a March sales increas of 17.4% on a 12.6% rise at comparable stores, both above S&P's expectations. Pharmacy comp-store sales grew 16.5% on an 8.1% increase in total prescriptions filled, both well above February and year-ago levels. Non-pharmacy sales were up 5.9% as sequential improvement continues. Walgreen is well positioned to benefit from the aging U.S. population, in S&P's opinion, with its focus on store expansion and improving customer service. S&P is maintaining the May-quarter earnings per share estimate at 33 cents, and is keeping the 12-month target price of $43, which is based on discounted cash-flow and p-e analyses. Accenture (ACN ): Initiates with3 STARS (hold) Analyst: Stephanie Crane S&P projects an early recovery for information-technology outsourcing solutions, which should allow Accenture to benefit from value-added outsourcing and consulting in key vertical markets. S&P sees revenues in fiscal 2004 (Aug.) and fiscal 2005 rising in the double digits amid an improving capital spending environment, coupled with the company's restructuring steps. S&P estimates earnings per share of $1.14 in fiscal 2004, and $1.32 in fiscal 2005, vs. $1.05 in fiscal 2003. S&P's hold opinion is based primarily on valuation. The target price is $25, and is based on a blend of peer-based and historical multiples, including p-e and price-to-sales ratios. Microsoft (MSFT ): Maintains 5 STARS (buy) Analyst: Jonathan Rudy, CFA Microsoft and Sun Microsystems reached settlement on Sun's lawsuit against Microsoft, under which Microsoft will pay $700 million to Sun to resolve pending antitrust issues, and $900 million to resolve patent issues. The companies have also agreed to pay royalties for the use of each other's technology. S&P sees this as a notable step for Microsoft towards resolving its remaining litigation. S&P believes the path has been cleared for Microsoft to utilize its $52 billion in cash and short-term investments in order to benefit shareholders. S&P would buy Microsoft. Shares trade at a discount to S&P's discounted cash-flow-derived target price of $35.  All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
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