Emerging Managers Fund

TUESDAY, MARCH 1, 2005

Kerr-McGee Corp. (KMG)

PRICE
CHANGE
U.S. dollars 80.66
-0.99
4:00p.m.

* At Market Close


Kerr-McGee Looks Pricey

Kerr-McGee Corp. (KMG: NYSE)
By A.G. Edwards & Sons ($77.66, March 1, 2005)

WE ARE DOWNGRADING shares of Kerr-McGee to Hold/Aggressive from Buy/Aggressive.


The stock has surpassed our previous fair value estimate of $70. Shares are up 34% year-to-date, versus a 22% increase for the integrated group and a 1% decline for the Standard & Poor's 500 Index.

Moreover, the stock has appreciated by approximately 50% since last May.

Although we believe the company's underlying fundamentals will continue to improve and earnings could surprise to the upside given its leverage to crude, the recent multiple expansion (due in part to Carl Icahn's impact and the announced chemical divestiture) implies the stock already reflects this improvement.

Hence, further upside potential appears limited near-term, and insufficient to maintain our Buy rating.

--Bruce Lanni, analyst


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