Stocks to Watch: MSFT, ETR, NZRO, OCLR, CERN

Federal antitrust officers are leaning towards a forced spin-off of Microsoft's (MSFT Quote) Office software business in an effort to end the company's monopoly in the U.S. computer industry, The Wall Street Journal reported, citing people familiar with the situation. Office software is the largest part of Microsoft's applications unit, accounting for more than 40% of total revenue and a significant portion of profits. The story also said Microsoft would be subject to restrictions on its conduct until the unit is divested as well as during any appeal of a breakup decision.

USA Today and The Washington Post published separate accounts about the proposed plan, also involving splitting the company along product lines.

For more on this story, see coverage from TheStreet.com/NYTimes.com's joint newsroom.

A number of firms released negative research on Microsoft in the wake of the company's downward revision of its revenue outlook and disappointing March-quarter revenue report. Goldman Sachs analyst Rick Sherlund took the stock off the recommended for purchase list and downgraded the stock to market outperform from buy. SG Cowen cut its rating to buy from strong buy. Lehman Brothers cut its price target on the stock. Microsoft plunged 13, or 16.3%, to 65.

Mergers, acquisitions and joint ventures

Qualcomm (QCOM Quote) said it invested $144 million in NetZero (NZRO Quote), an advertising-supported free Internet access provider, for a 10% stake. The wireless communications company now owns about 11.5 million shares of NetZero.

For more on this story, see coverage from TheStreet.com/NYTimes.com's joint newsroom.

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American Trans Air will lease about 40 new planes, worth about $2.3 billion, from Boeing (BA Quote), the Journal reported.

Separately, Lucent (LU Quote) said it has tapped former Boeing CFO Deborah Hopkins, as its new CFO. Hopkins is replacing Don Peterson, who is CEO of an $8 billion Lucent equipment unit that will be spun off in 2000.

Corning (GLW Quote) announced that it will acquire the remaining equity in NZ Applied Technologies of Woburn, MA, for up to $150 million in Corning common stock. Corning had held a 20% equity ownership position in the company in 1999.

Louis Dreyfus Natural Gas (LD Quote) said it agreed to acquire the oil and gas assets of Costilla Energy for $100 million.

Diversified energy company Entergy (ETR Quote) and closely held Koch Industries said they plan to form an energy marketing and trading company. Entergy and Koch said the new company will have $1 billion in assets, including a pipeline.

Separately, Entergy posted first-quarter earnings of 48 cents a share, well above the 10-analyst estimate of 28 cents and the year-ago 21 cents a share. The company also said it is on pace to meet its 2000 EPS target of $2.35 to $2.45 a share. Entergy was raised to accumulate from neutral at Merrill Lynch.

Kellogg (K Quote) and Salton (SFP Quote) said they entered a marketing alliance. The companies said the initial products included in the agreement are Kellogg's Pop Tarts and Eggo waffles and Salton's Toastmaster products.

Ocular Sciences (OCLR Quote) said it is working with Wesley Jessen VisionCare (WJCO Quote) to find a white knight to help them save their proposed merger, now valued at about $625 million in stock.

Wesley Jessen, the target of a $600 million hostile bid by Bausch & Lomb (BOL Quote), earlier said it was in talks with an unnamed third party for a possible transaction. Wesley Jessen said the preliminary talks with the third party were being conducted with the consent of Ocular Sciences.

For more on this story, see coverage from TheStreet.com/NYTimes.com's joint newsroom.

Westvaco (W Quote) -- a paper, packaging and specialty chemicals company -- announced plans to pay $500 million to acquire IMPAC Group, a consumer goods packaging and printing products supplier. Westvaco said the price includes the assumption of $271 million of net debt and the assumption of $23 million of preferred stock.

For more on this story, see coverage from TheStreet.com/NYTimes.com's joint newsroom.

-- Eileen Kinsella

Earnings/revenue reports and previews

(Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.)

American Express (AXP Quote) posted first-quarter earnings of $1.44 a share, slightly above the 15-analyst estimate of $1.42 and up from the year-ago $1.26. The company also said shareholders approved a 3-for-1 stock split.

Days before AT&T's (T Quote) more than $10 billion planned offering of its wireless division, the company said the unit saw strong revenue and operating growth in the first quarter. First-quarter revenue for the wireless group mobility unit grew 40.7% to $2.2 billion from $1.6 billion a year earlier. Adjusted for its purchase of Vanguard Cellular last year, revenue increased 33.1%, the company said.

Chewing-gum giantWrigley(WWY Quote) reported first quarter earnings of 65 cents per share, missing the 4-analyst estimate of 67 cents, but up from the year-ago figure of 60 cents.

Upside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Intraday Price
Air Products (APD Quote)	2Q	62c	57c	53c	11	n/a	n/a
Bindley Western (BDY Quote)	1Q	33c	32c	27c	9	xx	xx
Hershey (HSY Quote)	1Q	48c	44c	35c	15	xx	xx
Merck (MRK Quote)	1Q	63c	62c	54c	21	xx	xx
Priceline.com (PCLN Quote)	1Q	-4c	-6c	-12c	16	n/a	n/a
Lexmark (LXK Quote)	1Q	59c	58c	48c	11	n/a	n/a
RGS Energy (FILE Quote)	1Q	$1.07	99c	97c	3

Downside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Intraday Price
North Fork Bancorp (CDI Quote)	1Q	40c	42c	36c	10	n/a	n/a

In-Line Reports
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Intraday Price
CDI (CDI Quote)	1Q	62c	62c	62c	9	xx	xx
Benchmark Electronics (BHE Quote)	1Q	12c	12c	40c	9	N/A	N/A

-- Eileen Kinsella

Offerings and stock actions

AVX (AVX Quote) set a 2-for-1 stock split.

Cabletron Systems' (CS Quote) board approved a $400 million share repurchase plan.

First Security (FSCO Quote) said it revoked its 15 million-share buyback plan announced April 3.

Analyst actions

Upgrades

CommScope(CTV Quote): fiscal 2000 earnings estimates UP to $1.67 from $1.60; fiscal 2001 estimate set at $1.95 at Merrill Lynch.

Nordstrom(JWN Quote): UP to intermediate-term buy from accumulate; price target up to 40 at Merrill Lynch.

Silicon Valley Group (SVGI Quote): UP to outperform from neutral at Lehman Brothers

Simpson Manufacturing (SDD Quote): UP to buy from long-term attractive at Robertson Stephens.

Independent refiner Sunoco(SUN Quote): UP to buy from attractive at Bear Stearns; price target: 38 per share. The upgrade was announced after Sunoco reported sharply higher first-quarter earnings last week.

Downgrades

Cerner (CERN Quote): DOWN to hold from buy based on valuation.

Earthlink (ELNK Quote): Price target DOWN to 34 from 46 at Morgan Stanley Dean Witter.

Legato Systems(LGTOE Quote): DOWN to neutral from outperform; price target LOWERED to 15.

Quintiles Transnational (QTRN Quote): DOWN to neutral from attractive at Bear Stearns.

Salomon Smith Barney lowered its opinion on two regional banks:

• Sky Financial(SKYF Quote): fiscal 2000 estimates DOWN to $1.69 from $1.72 and fiscal 2001 earnings estimates DOWN $1.85 from $1.90 a share; DOWN to outperform from buy.
• Wilmington Trust(WL Quote): DOWN to neutral from outperform; price target LOWERED to 50 from 62.

Initiations

Satellite Radio (XMSR Quote): NEW buy rating at CSFB.

Group Moves

Telocity (TLCT Quote): NEW buy rating and a 12-month target of 18 at CSFB.

TMP Worldwide (TMPW Quote): RE-STARTED as an accumulate at Merrill Lynch.

Credit Suisse First Boston initiated coverage of Freemarkets (FMKT Quote), Ventro (VNTR Quote) and VerticalNet (VERT Quote).

• Online business auctioneer FreeMarkets was rated a buy with a six- to 12-month price target of 85 to 90.
• Ventro, which operates a B2B e-commerce, marketplace, was rated a buy with a 12-month target of 45.
• VerticalNet, which runs B2B Web sites, was rated a strong buy with a 12-month target of 110 to 120.

Merrill Lynch raised its opinion on two gaming companies:

• Station Casinos(STN Quote): UP to an intermediate-term buy from accumulate.
• Argosy Gaming(AGY Quote): fiscal 2000 earnings estimates UP to $1.65 from $1.55 a share; UP to buy from accumulate.

-- Eileen Kinsella

Miscellany

Envision Development (EDV Quote) named William Patch as chairman and CEO.

A possible merger between the London and Frankfurt exchanges, the top two in Europe, could include a link to the Nasdaq Stock Market, the Journal reported, citing people familiar with the situation. According to the story, any link would stop short of a three-way merger.

-- Eileen Kinsella