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Still Hold Target

Target (TGT):

Still 3 STARS (hold)

Analyst: Karen Sack

The Q3 EPS was in line, posted $0.25 vs. $0.24, before unusual item, on 1.5% rise in same-store sales. Pre-tax profit was up solid 17.2% in Target stores segment, but down 14.1% at Mervyn's stores, and down 19.4% in department stores segment. Higher credit card costs hurt expense ratios. S&P still sees retailing highly competitive in Q4 and Q1, particularly for department stores. Lowering our Target fiscal 2002 (January) EPS estimate by $0.02, to $1.48, look for 15% increase in fiscal year 2003 to $1.70. Target appears fairly valued at 22 times fiscal year 2003 estimate.

Brown-Forman (BFA):

Still 3 STARS (hold)

Analyst: Richard Joy

The Louisville, Ky.-based company that makes a variety of products including best-sellers Jack Daniel's, Canadian Mist whiskeys and Korbel champagne reported an October-Q EPS of $1.17 vs. $1.17, in line with lowered guidance. Net sales fell 0.4% on unfavorable currency and lower consumer durables sales. Wine/spirits segment profits rose 13.5% on growth in premium spirits brands, tight cost controls. The consumer durables segment profits fell 54.4% on economic weakness, and impact of September 11. S&P is keeping its fiscal 2002 (Apr.) EPS estimate at $3.35, and sees fiscal year 2003 EPS of $3.60. At only 17 times fiscal year 2003 estimate, shares are worth holding, based on strong balance sheet and potential to participate in industry consolidation.

Semtech (SMTC):

Still 3 STARS (hold)

Analyst Megan Graham Hackett

The maker of analog and mixed-signal semiconductor posted Q3 EPS of $0.10 vs. $0.22, $0.01 ahead of guidance. The upside was from 100 basis point improvement in gross margin vs. Q2. Revenue was up 8% vs. Q2, ahead of the company's prior forecast of 5%. The company sees Q4 revenue up 4%-6%, EPS of $0.11 vs. our $0.10 estimate. Strength was in power management on design wins, Pentium 4 ramp. Also, new communications equipment products are starting to hit production. Sees further gross margin benefit due to mix. While the EPS report is solid, Q4 guidance is encouraging, at 14X sales, 11X book value, S&P doesn't recommend adding to current positions.

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