Prudential Financial (PRU): Adding with 4 STARS (accumulate)
Analyst: Catherine Seifert
The nation's second largest life insurer (based on assets) has several key individual and group life franchises. Results in 2002 should benefit from a rebounding economy and capital markets activity. Although recently demutualized Prudential has made headway in cutting costs and boosting subpar 4% return on investment, high degree of execution remains. But at 97% of book, 14 times our $2.20 2002 operating EPS estimate, and 12 times our $2.55 2003 estimate, shares are modestly undervalued. S&P has a 6 to 12 month target price of $36.
Maintain 5 STARS (buy)
Analyst: Richard Joy
Growth outlook remaihns strong. In a meeting with analysts, the company reiterated expectation for 5-6% volume growth, 6-7% revenue growth, 13-14% EPS gain for 2002. Businesses are performing well so far in 2002. S&P expects new products to continue momentum. Quaker Oats integration going well, with $175 million in synergies expected in 2002. S&P sees strong cash flow supporting additional niche acquisitions. S&P is keeping its 2002 and 2003 EPS estimates at $1.96 and $2.21, respectively. Shares remain attractive given strong brand momentum, growth potential and earnings visibility.
JP Morgan Chase (JPM):
Maintain 3 STARS (hold)
Analyst: Stephen Biggar
The shares came under pressure after a news report that the Federal Reserve is taking a closer look at the company's accounting for commodity-related trades with Enron as market remains on edge about further fallout from past business dealings of the failed energy trader. JP Morgan shares are already reeling from charge-offs related to its lending exposure to Enron, the Argentina crisis and a poor capital markets environment. S&P is lowering its 2002 EPS estimate to $2.80 from $2.95, since much improvement in operating environment is not likely before year end. The shares should find support in the upper-$20s, or around 10 times the 2002 estimate.
Circuit City (CC):
Maintain 3 STARS (hold)
Analyst: Tom Graves
Shares fell after disappointing EPS guidance. Also the company is planning to spin off ownership of the CarMax vehicle business. Based on current CarMax share price, expect Circuit City holders to get CarMax stock at about $7.95 per Circuit City share held. For Circuit City's consumer electronics segment, S&P is lowering its fiscal 2003 (Feb.) EPS estimate to $0.60, from $0.83, including $0.18 costs relating to store remodels. S&P expects remodels to help business over the long term, but also look for remodel-related costs to total at least $0.18-$0.20 per share in both fiscal 2004 and fiscal 2005.