Analyst Actions: Sun, VA Linux, Abercrombie & Fitch, Coke

The already gloomy skies over

Sun Microsystems

(SUNW) - Get Report

just got grayer after Tom Kraemer,

Merrill Lynch

analyst, cut his rating on the stock to neutral from accumulate while scaling back earnings estimates.

Sun's fiscal 2001 earnings per share estimate was dropped to 65 cents from 68 cents and its 2002 earnings estimate was dropped to 84 cents a share from 89 cents a share. Current Wall Street consensus estimates, according to

First Call/Thomson Financial

, call for Sun to make 66 cents a share in 2001, and 84 cents a share for 2002.

Kraemer also lowered his revenue estimates on the servermaker, pegging fiscal 2001 at $20.7 billion, a $200 million reduction from previous forecasts. Fiscal 2002 was lowered to $25.9 billion from $26.1 billion. And the danger of future reductions isn't over.

The downgrade really stings Sun, which hasn't had much to cheer about in the last six months. It closed at a 52-week low yesterday and has dropped 66% since hitting a high of $64.66 on Sept 1. That's a lot of sixes, and an awful lot of evil directed at a company that used to be the darling of the tech world. Sun used to easily beat estimates by a healthy margin and never have anything negative to say about earnings growth.

But times have changed, and the economic slowdown has really hurt Sun, which supplied the guts and bolts of the dot-com boom. Now that the boom has busted, many of the clients that Sun used to rely on simply do not exist, making growth even more difficult. Add in slowing information technology spending at older, more reliable customers and the once-blue skies turn a dark gray.

Those wild and woolly Linux-related stocks got a bit of a goose last night when industry heavyweight

VA Linux

(LNUX)

reported second-quarter earnings. The company pushed back profit goals by three whole quarters, slashed its workforce and named a new president and CEO. This shakes up one of the few companies willing to go toe-to-toe in the operating systems market with software giant

Microsoft

(MSFT) - Get Report

and puts more pressure on the rest of the Linux-related companies.

Credit Suisse First Boston

analyst Amit Chopra cut the company's rating to hold from buy, while reducing his 2001 earnings per share estimate to a 96 cent loss from a 82 cent loss. In a note to investors, Chopra said VA Linux is attempting a difficult transition -- focusing on larger, more stable companies in an area where it is not the established leader.

"The company is driving an overhaul in its customer base, from perishable dot coms to mainstream enterprise clients such as

Instinet

and

Cisco

(CSCO) - Get Report

," he wrote. "One challenge as it migrates to the enterprise will be the ability to compete with entrenched traditional server players offering Linux products."

Lehman Brothers

analyst George Elling lowered his 2001 earnings per share estimate, while reiterating his market perform rating and keeping the price target at $15. The 2001 estimate was dropped to a loss of $1.01 a share from a loss of 92 cents a share, while 2002 earnings are expected to come in with a 65 cent loss. The current Wall Street estimate for 2001 is an 86 cent loss, while 2002 was expected at break even. Expect both of those to change greatly after today's comments.

Next quarter, Elling expects VA Linux to make $30 million in revenue, heeding guidance from the company. VA Linux came in with $42.5 million in revenue for the second quarter, but said that $30 million in revenue could be something of a problem next quarter.

W.R. Hambrecht

analyst Prakesh K. Patel kept his neutral rating on the stock and scaled back revenue estimates to $29.4 million.

Upgrades

Abercrombie & Fitch

(ANF) - Get Report

: UP to market outperform from market perform at

Goldman Sachs

.

Downgrades

AmeriSource Health

(AAS)

: DOWN to hold from buy at

UBS Warburg

.

The Boston Beer Company

(SAM) - Get Report

: DOWN to hold from buy at Credit Suisse First Boston.

Coca-Cola

(KO) - Get Report

: DOWN to market outperform from U.S. Recommended for Purchase at Goldman Sachs.

Interliant

(INIT)

: DOWN to accumulate from buy at Merrill Lynch.

Tektronix

(TEK)

: DOWN to market perform from market outperform at Goldman Sachs.

Initiations

Agilent

(A) - Get Report

: NEW hold at CSFB.

BEA Systems

: NEW intermediate-term accumulate, long-term buy at Merrill Lynch; price target: $57.

E.Piphany

(EPNY)

: NEW strong buy at

Prudential Securities

; price target: $38.

Micron Technology

(MU) - Get Report

: NEW hold at CSFB.

Group Moves

Looks like Lehman Brothers analyst Jim Feiner has dipped into a bunch of the retail names, starting, of course, with the letter "A." Today, he initiated coverage on outdoorsy clothier

American Eagle Outfitters

(AEOS)

, frat boy staple

Abercrombie & Fitch

(ANF) - Get Report

and indoorsy clothier

Ann Taylor

(ANNT)

.

All three were started at buy, with his comments on each company following the price target:

Abercrombie & Fitch, price target: $38."While A&F has fixed many of the merchandise issues experienced in 2000, our short-term outlook remains cautious as management works through the challenges to its mean business, which should be offset somewhat by easy sales comparisons for all of 2001."
American Eagle Outfitters, price target: $70. "Our rating reflects difficult year-to-year comparisons and the stock's 39% increase thus far in 2001. We believe the company's shares should sell at a premium to other specialty retailers."
Ann Taylor, price target: $35. "Earnings for fiscal 2000 are expected to decline 6% due to a poor fourth quarter when they are reported on March 9. Earnings visibility is quite limited for the first half of 2001 due to a product transition. We believe this is already reflected in the stock."