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Street Talk: PC pinch
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December 28, 2000: 9:16 a.m. ET
Analysts cut IBM, Dell revenue, earnings outlook; praise Johnson & Johnson
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NEW YORK (CNNfn) - The beleaguered personal computer sector took another hit Thursday when a Wall Street analyst cut revenue estimates for two of the industry's biggest names.
But analysts reassured investors about the strength of health care products maker Johnson & Johnson after it said an acquisition would cause it to take a fourth-quarter charge.
IBM, Dell
Prudential Securities cut its revenue outlook for two titans of the computer industry, International Business Machines (IBM: Research, Estimates) and Dell Computer (DELL: Research, Estimates).
Prudential cut its fourth-quarter revenue forecast for IBM to $24.5 billion from $25.3 billion.
Prudential analyst Kimberly Alexy said in a research report she was reducing her outlook for IBM because of expectations of weakness in the company's personal computer, hard disk drive and software businesses.
Prudential kept its fourth-quarter earnings estimate of $1.39 a share, compared with consensus estimates of $1.46. It said it was not changing its earnings estimates because it believes the company "has sufficient control over discretionary expenses to offset a potential revenue shortfall."
IBM's shares were down $2.44 to $82.25 in before-hours trading Thursday.
Prudential cut its fourth-quarter revenue outlook for Dell to $8.29 billion from $8.38 billion, and its fiscal 2002 earnings per share estimate to $1.06 from $1.12.
"We are again lowering revenue (estimates) and are also lowering (earnings estimates) on concerns that demand conditions have further weakened and pricing has intensified," said Prudential, which already lowered its revenue estimates on the computer maker earlier in the month.
Dell shares closed Wednesday at $18.
Johnson & Johnson
Credit Suisse First Boston reiterated its "strong buy" rating and 12-month target price of $125 on shares of Johnson & Johnson (JNJ: Research, Estimates). J&J said Wednesday it completed its acquisition of Atrionix, which develops a system to treat heart disorder atrial fibrillation, in an all-cash deal valued at $62.8 million.
CSFB said it projected earnings-per-share growth of 14 percent in the near term, which is comparable to the drug group as a whole. J&J faces no major patent expirations until 2004 and minimal exposure to Medicare-type drug categories, it said.
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UBS Warburg analyst David Lothson reiterated his "strong buy" rating and $115 price target on J&J shares, but cut his 2000 earnings estimate to $3.36 from $3.40, saying the Atrionix acquisition will bring a 4-cent charge in the fourth quarter.
J&J shares closed at $103 Wednesday, near their 52-week high of $104.75.
i2 Technologies
ABN Amro reiterated its "buy" rating and 12-month target price of $100 on shares of e-business firm i2 Technologies (TIWO: Research, Estimates), one day after the company announced it would buy divisions of Trade Services Holdings.
i2 said it would pay $135 in stock and cash for Trade Services' content divisions, which provide product information to the electrical, plumbing and mechanical industries.
ABN Amro analyst Robert Johnson called the acquisitions "a nice strategic move for i2 that positions them as the leader in content solutions for B2B marketplaces."
i2 shares closed at $56.56 Wednesday, up $5.63. The shares' 52-week range is $111.75 to $34.50.
CIT Group, Heller Financial
UBS Warburg analyst Alison Williams cut ratings on two financial companies, CIT Group (CIT: Research, Estimates) and Heller Financial (HF: Research, Estimates), saying both stocks are approaching UBS Warburg's price targets.
Williams cut CIT Group to "buy" from "strong buy," but raised the price target on CIT shares to $25 from $21.
"While we see upside in (CIT) stock and note that CIT is a modest beneficiary of lower (interest) rates, we also note that CIT is at risk in a possible hard-landing scenario," Williams wrote in a research note.
Williams cut Heller to "hold" from "strong buy," saying the stock was within 10 percent of UBS Warburg's $35 price target -- which Williams said is a price "adequately" reflective of Heller's positives and risks.
CIT Group closed Wednesday at $19.94, while Heller Financial closed at $31.44.
Exelon
ABN Amro lowered its rating on electric utility holding company Exelon (EXC: Research, Estimates) to "add" from "buy."
Exelon was recently formed through the merger of Philadelphia-based PECO Energy and Chicago-based Unicom.
 "Valuation and merger-and-acquisition risk lead us to scale back (our) outlook while (the) next leg of (the) story develops," ABN Amro said in a research report.
"While we would not bet against the Exelon story, the 2000 (comparisons) make it more difficult to deliver strong 2001 stock performance," ABN AMRO said.
The company's shares closed up 35 cents at $70.85 Wednesday.
-- from staff and wire reports 
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