Company Report: Merrill Gets AOL, Time Warner Leaping With Upbeat Comments

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In a research report titled "You've Got Upside," Merrill Lynch's Internet and media research staff offers up a bullish note on the proposed get-together of America Online (AOL) and Time Warner (TWX) .

Since the deal was announced, both of the stocks have been under steady pressure. Merrill has served as an underwriter for both companies, according to a footnote on the research report.

Merrill maintained its intermediate and long-term buy ratings and it reinstated coverage of Time Warner with buy ratings both intermediate and long-term. "We believe the combined company is well positioned to benefit from the ongoing impact of the Internet on the global media industries," Merrill said in the report. "We regard the stock as a core holding if for no other reason than this."

"We continue to believe the merger will prove a strong combination, one that increases the value of both companies and facilitates 1) operating synergies, 2) the transformation of existing businesses, and 3) the launch of new businesses. In an industry evolving this quickly, we believe competitive positioning and brand ownership are more important drivers of stock performance than precise valuation analyses."

Merrill said that considering that, where AOL is currently trading the stock "appears undervalued by almost any measure." Merrill has a 12 to 18 month price target on AOL of 90. The firm said it doesn't "see much downside risk at current levels." AOL closed yesterday at 49 5/8. AOL popped 7 1/2, or 15.11%, to 57 1/8, while Time Warner jumped 7 15/16, or 10.8%, to 81 1/2.

Alcatel

(ALA)

of France lost 4, or 8.4%, to 43 3/4 after it said it is

buying

Newbridge Networks

(NN)

of Canada in a stock swap valued at $7.1 billion. Newbridge closed down 1 9/16 to 32 13/16. Under terms of the deal, Newbridge shareholders will receive 0.81 share of Alcatel ADRs, or $38.98125 a share.

Mergers, acquisitions and joint ventures

ADC Telecommunications

(ADCT) - Get Report

lost 2 13/16, or 6%, to 44 after it said it is buying

PairGain Technologies

(PAIR)

for $20.13 a share in stock, or $1.6 billion. PairGain rose 1 7/16, or 9%, to 17 1/2.

ADC is a supplier of network equipment, software and integration services for broadband networks. PairGain is a designer, manufacturer, marketer and seller of digital-subscriber-line networking systems. ADC expects the buyout to be nondilutive to earnings for the balance of fiscal year 2000 and 5 cents accretive in fiscal year 2001.

AT&T Latin America

, a division of

AT&T

(T) - Get Report

, said it would buy Argentina-based

Keytech LD

, a new local phone company. AT&T Latin America would purchase all the share of closely held Keytech from

Keytech Group

. AT&T rose 1/2 to 46 7/8.

Separately, AT&T said it agreed to a deal with

Cablevision Systems

(CVC)

to sell combined telephone and TV service packages to customers in New York, New Jersey and Connecticut. AT&T said the companies would offer cable channels and Internet services. The agreement saves AT&T from buying Cablevision, but doesn't give AT&T direct use of Cablevision's wires to transmit its services in order to bypass local telephone company's networks. Cablevision rose 13/16 to 69 11/16.

Concur Technologies

(CNQR)

gained 3 13/16, or 16.4%, to 27 1/16 after it said that Nortel and

Safeco

(SAFC)

would each make a $35 million equity investment in the company and establish a trading network for small and midsized businesses called

Concur Business Advantage

. Safeco lost 13/32 to 20 9/16.

MGM Grand

(MGG)

gained 1 7/16 to 41 13/16 after it offered to buy

Mirage Resorts

(MIR)

for $17 a share. Mirage jumped 3 5/8, or 33.3%, to 14 1/2.

In a letter to Steve Wynn, chief of Mirage, MGM Grand Chairman J. Terrence Lanni said that Mirage shareholders can either receive the $17 in all cash or a combination of $7 in cash and MGM Grand stock valued at $10 a share, based on MGM Grand's closing price of 40 3/8 yesterday. The $17 a share offer is a nice premium over Mirage's close of 10 7/8 yesterday.

724 Solutions

(SVNX)

slipped 9/16 to 128 3/8 after it said

Motorola

(MOT)

bought an equity interest in the company. Motorola gained 4 to 160 3/4. The investment was part of 724 Solutions' IPO in January.

Earnings/revenue reports and previews

(

Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified. New highs and lows on a closing basis unless otherwise specified.

)

Conseco

(CNC) - Get Report

lost 5/8 to 15 1/8 after it posted fourth-quarter operating earnings of 64 cents a share, beating the 12-analyst estimate of 57 cents but down from the year-ago 89 cents.

Consolidated Stores

(CNS) - Get Report

slipped 1/16 to 12 1/2 after it reported fourth-quarter earnings of $1.06 a share, which includes a loss from its

Kbkids.com

venture. Due to the loss, the report is in line with the year-ago earnings but beats the 15-analyst estimate of $1.03 a share, which reflects the effect of the venture.

Federated Department Stores

(FD)

lost 13/16 to 34 3/16 despite reporting fourth-quarter earnings of $2.04 a share, beating the 18-analyst estimate of $1.99 and up from the year-ago $1.88 a share.

Gateway

(GTW)

popped 10 7/16, or 18.3%, to 67 5/8 after it said it plans to hit $30 billion in sales by 2004 through products other than PCs. The company said it expects non-system, or non-PC sales to reach 40% by year end, which is 10% higher than its initial target. Separately, Gateway entered a deal with

Sun Microsystems

(SUNW) - Get Report

to offer big-business customers computers and Web-based computer solutions. Sun rose 6 5/8, or 7.5%, to 94 5/8.

H&R Block

(HRB) - Get Report

inched up 1/4 to 40 11/16 after it posted a third-quarter loss of 7 cents a share, narrower than the six-analyst estimate of a 17-cent loss but wider than the year-ago report of a 3-cent loss.

Liz Claiborne

(LIZ)

gained 15/16 to 34 15/16 after it posted fourth-quarter earnings of 85 cents a share, beating the 13-analyst estimate and up from the year-ago 73 cents.

Scholastic

(SCHL) - Get Report

, in response to inquiries, said "there are no corporate developments to account for the recent drop" in its stock price. Also, the company anticipates it will "meet or exceed" consensus analyst estimates for the third quarter and full fiscal year ending May 31.

Scholastic said, according to

I/B/E/S International

,

Nelson Information

and

Zack's

, estimates range from earnings of 6 cents to 7 cents a share for the third quarter, while for the full fiscal year the estimates range $3.05 to $3.08 a share. The full fiscal year estimates exclude a pretax nonrecurring charge that was recorded in the second quarter. The five-analyst consensus estimate calls for the company to earn 6 cents a share for the third quarter and $3.06 for the full fiscal year.

On Jan. 18, Scholastic closed at 69 3/4. Today, the stock finished up 1/2 to 50 1/2.

Tandy

(TAN) - Get Report

lost 2 1/4, or 5.3%, to 39 7/8 after it reported fourth-quarter earnings of 63 cents a share, a penny better than the 17-analyst estimate and up from the year-ago 51 cents.

Offerings and stock actions

Anheuser-Busch

(BUD) - Get Report

gained 9/16 to 62 1/4 after it set a 50 million-share repurchasing program.

Capital One

(COF) - Get Report

lost 7/8 to 33 1/16 after it set a share repurchasing program for up to 10 million shares.

Deltic Timber

(DEL)

gained 1 3/8, or 6.4%, to 23 after it said it will repurchase up to $10 million of its shares.

Incyte

(INCY) - Get Report

soared 26 15/16, or 12%, to 252 after it set a 2 million-share offering for institutional investors at $211 a share. The offering could raise $422 million.

The 23.5 million-share IPO of

Nextel Partners

(NXTP)

jumped 10 1/8, or 50.6%, to 30 1/8 after it was priced at $20 a share, the top of the $18-$20 range.

Goldman Sachs

and

Donaldson Lufkin & Jenrette

are the lead underwriters. Nextel Partners is an affiliate of

Nextel Communications

(NXTL)

, offering digital wireless communications services in small and midsized markets.

Analyst actions

RSA Security

(RSAS)

lifted 5, or 9.1%, to 59 3/4 after it raised its share repurchase program to 8 million from 4 million.

St. Joe

(JOE) - Get Report

added 11/16 to 24 13/16 after it said it set a $150 million stock buyback.

Textron

(TXT) - Get Report

gained 5/16 to 59 13/16 after said it authorized a 10 million-share repurchase program. Textron said the buyback reflects confidence in strong 2000 results.

Weyerhaeuser

(WY) - Get Report

lost 1 5/8 to 50 after it set a repurchasing plan for up to 12 million shares.

Zoll Medical

(ZOLL)

tacked on 5, or 13.2%, to 47 after it priced a 1.5 million-share secondary offering at $41.75 a share.

Analyst actions

Deutsche Banc Alex. Brown

initiated coverage of

Accredo Health

(ACDO)

-- a provider of specialized contract pharmacy and related services pursuant to agreements with biotech manufacturers -- with a buy rating and a 30 price target. Accredo Health slid 1/8 to 26 1/8.

Merrill Lynch raised its rating on

Arrow Electronics

(ARW) - Get Report

to buy from accumulate. Arrow Electronics popped 1 15/16, or 9.2%, to 23.

SG Cowen

rolled

Advanced Paradigm

(ADVP)

with a buy rating and set a price target of 28. Advanced Paradigm edged up 7/8 to 24.

Merrill Lynch sliced its intermediate-term rating on

Baltimore Technology

(BALT)

to accumulate from buy. Baltimore Technology plummeted 27 3/8, or 12.5%, to 191 5/8.

Credit Suisse First Boston

boosted software and programming manufacturer

BEA Systems'

(BEAS)

raised its fiscal 2001 earnings target to 33 cents from 31 cents and price target to 170 from a split-adjusted 76. BEA Systems lifted 1 1/8 to 139.

Donaldson Lufkin & Jenrette

downgraded

Consolidated Papers

(CDP)

to market perform from buy. Consolidated Papers gained 3/4 to 36 3/4.

Merrill Lynch launched coverage of online auctioneer

eBay

(EBAY) - Get Report

with a buy rating. eBay soared 20 7/16, or 15.2%, to 154 15/16.

SG Cowen

initiated coverage of

Express Scripts

(ESRX)

with a buy rating and a 50 price target. Express Scripts bounced 2 1/8, or 5.1%, to 43 11/16.

Salomon Smith Barney

upped its price target on

Focal Communications

(FCOM) - Get Report

to 60 from 30. Focal Communications lifted 1 5/8 to 46 1/8.

Merrill upgraded

Kyocera

(KYO)

-- a global producer of high-tech solutions in the fields of electronics, telecommunications, metal processing, automotive components and optics -- near-term rating to buy from accumulate. Kyocera climbed 8 to 175.

SG Cowen initiated coverage of Internet advertiser

L90

(LNTY)

as a strong buy with a near-term price target of 37. L90 sank 2, or 8%, to 22 7/8.

Credit Suisse First Boston

raised its earnings estimates on

National Discount Brokers

(NDB)

. The firm upped its fourth-quarter EPS to 16 cents a share from 12 cents and raised its fiscal 2000 estimate to 58 cents share from 43 cents, while taking its fiscal 2001 estimate to $1.14 a share from 97 cents. National Discount Brokers tacked on 1/16 to 22 9/16.

CSFB rolled out coverage of

Protein Design Labs

(PDLI) - Get Report

with a buy rating and a price target of 222. Protein Labs jumped 21 11/16, or 11.6%, to 207 25/32.

Merrill Lynch rolled out coverage of

Regeneron

(REGN) - Get Report

with an intermediate accumulate, long-term buy rating. Regeneration advanced 15 3/4, or 75.4%, to 36 5/8.

Lehman Brothers

lowered its price target for

Summit Technology

(BEAM)

-- a manufacturer of laser systems and related products to correct vision disorders -- to 18 from 25. Summit Technology slipped 4 1/4, or 35.2%, to 7 13/16.

Goldman Sachs

upgraded

Tiffany

(TIF) - Get Report

to its recommended list from market outperformer. Tiffany lifted 2 19/32 to 59 5/16.

ING Barings

upped its rating on

Unilever

(UL) - Get Report

-- a manufacturer of foods, detergents and other personal products -- to buy from hold. Unilever declined 1/16 to 25 11/16.

Lehman Brothers downgraded

Visx

(VISX)

-- another manufacturer of vision-improving laser technology -- to neutral from buy. Visx sank 5 9/16, or 25.4%, to 16 5/16.

Merrill Lynch upped its fiscal 2000 EPS estimate on

Wal-Mart

(WMT) - Get Report

to $1.46 from $1.45 a share. Wal-Mart shed 3/4 to 47 3/8.

CSFB raised its priced target on

Williams Communications

(WCG) - Get Report

to 65 from 38. Williams Communications tacked on 1/8 to 41 3/4.

Miscellany

Fluor

(FLR) - Get Report

declined 7 7/16, or 19.5%, to 30 9/16 after it said it would shut down its Marlton, N.J., plant, reducing its workforce by 300 jobs. The company said it would move its pharmaceuticals business to South Carolina, giving its employees of its

Life Sciences

division the option to transfer. Fluor has laid off 5,000 employees since it began restructuring in March.

Odetics

(ODETA)

was up over 20% today following the

story written yesterday by

TSC's

Cory Johnson wherein company officials outlined about their future plans. Odetics advanced 3 5/8, or 16.1%, to 26 1/8.

Oil ministers from

OPEC

members Saudi Arabia, Kuwait, United Arab Emirates and Qatar, along with non-OPEC nations Bahrain and Oman, ended a day of talks in Saudi Arabia with a vow to work toward a stable balanced market that would avoid damaging the world economy,

Reuters

reported.

Waste Management

(WMI)

lost 3/8 to 15 3/4 after it named William Trubeck CFO.

The Heard on the Street column in

The Wall Street Journal

said that stocks going into the four trusts

Merrill Lynch

(MER)

has sold so far, totaling $2.4 billion, have had a big run-up in the day before the HOLDRs begin trading. The jump occurred because Merrill has to buy all the shares for a HOLDRs trust the day before it is formed.

The column also notes that the shares are sold to the trust at their closing prices, sometimes as much as 5% to 10% higher than where they began trading that day. Merrill discloses which stocks will be included in the trust and their weightings in prospectuses for the trusts filed with the

Securities and Exchange Commission

weeks before the trusts start trading, the column says. Merrill Lynch mounted 5 7/8, or 6.7%, to 93 1/2.