Stocks to Watch: General Electric Falls on Cautious Words

  • Lehman Brothers lowered its 2003 earnings estimate for General Electric ( GE) by 5 cents due to lowered expectations for its pension income, the cost of expensing stock options and expected weakness in its aircraft engines and power systems divisions. The brokerage trimmed its 2003 estimates to $1.76 a share from $1.81 but left its 2002 EPS unchanged at $1.65. Lehman said GE's pension income could be $300 million lower in 2003 as the stock market continues to sink; that could cut net income by 2 cents a share. Expensing stock options will cost an additional penny a share.

    Meanwhile, the brokerage said weakness in the aircraft engines and power systems will each cut EPS by a penny as cash-strapped airlines continue to scale back airplane purchases, lowering commercial aircraft engine demand. Delivery of gas turbines could also be in jeopardy as energy companies continue to struggle. GE shares were recently down 3% to $30.37.

  • Mechanics represented by the International Association of Machinists at US Airways ( UAWGQ) voted to reject the airlines' contract offer. Fleet workers in the same union approved the pact. US Airways, the nation's seventh-largest airline, filed for Chapter 11 bankruptcy protection earlier this month, seeking $219 million in annual savings under a $1.2 billion restructuring plan. The airline was decimated by the terrorist attacks of Sept. 11, reporting a $2.1 billion loss in 2001.

    LI/> Yahoo! saw its shares jump 12.7% to $10.30 after Merrill Lynch raised its investment rating on the stock to neutral from sell on a valuation basis.. Yahoo!'s growth outlook continues to be cloudy, says Merrill analyst Justin Baldauf, and the stock will likely remain near $10 until investors regain confidence in the online advertising market. And that will take time, says Baldauf, whose firm hasn't done recent banking for Yahoo! But at Wednesday's closing price of $9.13, says Baldauf, Yahoo!'s $2.1 billion enterprise value translates into a 10x multiple of estimated 2003 earnings before interest, taxes, depreciation and amortization. That enterprise value multiple is in line with more traditional media names, says Baldauf, starting with AOL Time Warner ( AOL). And it's a discount relative to other large Internet stocks such as Amazon.com ( AMZN) and eBay ( EBAY).

  • Doughnut maker Krispy Kreme ( KKD) said second-quarter earnings rose nearly 50% over last year and beat analysts' expectations by a penny after successfully opening 12 new stores. The company posted a net profit of $8.9 million, or 15 cents a share, compared with $5.9 million, or 10 cents a share, a year ago. Revenue rose 28% to $114.6 million from $89.5 million from last year. Krispy Kreme expects third-quarter EPS to be 16 cents and fourth-quarter EPS to be 18 cents, in line with expectations. Shares of the company were recently up 2.7% at $35.37 on the New York Stock Exchange.

  • Panera Bread ( PNRA) said same-store sales, excluding closed locations and one specialty shop, rose 5.3% in the four weeks ended Aug. 10 compared with the same period last year. Company-owned same-store sales rose 4.5%, whereas franchised store sales rose 5.7%. Average sales per store rose 5.1% to $35,125, up from $33,430 in last year's four-week period, which ended Aug. 11. The company's latest second-quarter results, showed that Panera earned $3.5 million, or 13 cents a share, up from $2.4 million, or 8 cents a share, in the year-ago period. Panera's stock was up 4.4% to $28.69 around midday.

  • PetsMart ( PETM), the pet store chain, said second-quarter earnings rose sharply, bolstered by rapid growth in the pet services business and effective cost-cutting measures. The Phoenix-based company, which operates nearly 600 stores in North America, posted net income of $21.5 million, or 15 cents a share, compared with $2.8 million, or 2 cents a share, a year earlier. The results beat analysts' expectations by a penny. Revenue for the quarter came in at $651.5 million, up from $582.4 million last year. Comparable-store sales rose 11.4%. The company also raised guidance for the third quarter and full year 2002. Shares were recently losing 4 cents, or 0.3%, at $15.82.

  • Multimedia Games ( MGAM), a provider of casino and gaming technology for Native American bingo halls, announced Thursday that it has entered preliminary settlement discussions with the federal government regarding its MegaNanza lawsuit. Multimedia filed the suit back in April 2002, requesting a declaratory judgment from a federal court that its MegaNanza games, the company's most profitable product lines, be classified as Class II.

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