Wal-Mart (WMT): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)
Analyst: Karen Sack
The company beat other retailers with May same-store sales up 6.2%. Wal-Mart is boosting square footage by 9% in fiscal 2003 (Jan.) as supercenter growth accelerates. Also, the discount retail chain has ample opportunities for gains in international sales, which now are accounting for only 16% of revenues and 4.2% of operating profits. Although S&P sees selling, general and administrative expenses rising on higher health care and insurance costs, Wal-Mary is the best positioned company to hold down increasing costs.
S&P sees fiscal 2003 earnings per share up 16% to $1.77 and about 15% annual gains in the following years. S&P's target price is $65 over the next 12 months.
Symantec (SYMC): Maintains 5 STARS (buy
Analyst: Jonathan Rudy
Shares are down 9% on a sell-side analyst downgrade. While the corporate IT spending environment remains challenging, S&P still believes that Internet security will fare better than other areas of the IT budget. Additionally, approximately 40% of Symantec's business is consumer-oriented, which has performed better than expectations. The company continues to generate strong cash flow. At 21 times S&P's fiscal 2003 (March) estimate of $1.44, with 15%-20% sustainable growth, Symantec remains attractive at a discount to market and security-software peers.
EMC Corp. (EMC): Maintains 3 STARS (hold)
Analyst: Richard Stice
At an analysts' meeting, the company says it is comfortable with consensus second quarter revenue and earnings per share estimates. The comapny is focusing on expanding its product lines in software and networked storage. EMC sees software at 30%-plus of sales by the second half of 2004. Pricing pressures remain intense. Cost-cutting efforts are having a positive impact. The company expects to lower its second quarter break-even revenue level to $1.5 billion, from $1.8 billion a year ago. S&P is keeping the 2002 estimate at a loss per share of $0.01. S&P is encouraged by EMC's renewed strategy, but thinks weak end-markets and poor visibility warrant a hold ranking.
Tyco International (TYC): Downgrades to 2 STARS (avoid) from 3 STARS (hold)
Analyst: Michael Jaffe
A newspaper reported that Tyco's interim CEO may record up to $6 billion in charges to mend its balance sheet. The news implies to S&P that Tyco's CIT unit may go at a fire sale price in the $4 billion range in order to rid the books of its $20 billion in debt. Post-CIT, S&P sees Tyco's debt near $17 billion -- a manageable level despite operational and organizational problems. Given growing distractions, S&P is cutting the fiscal 2002 (Sept.) earnings per share estimate to $2.30 from $2.60, and is trimming fiscal 2003's to $2.10 from $2.90. S&P thinks execution risk is high, given Tyco's new CEO and embattled CFO, and would put funds elsewhere.
Cytyc (CYTC): Reiterates 3 STARS (hold)
Analyst: Robert Gold
The stock is plunging despite news that the FDA approved testing for both chlamydia and gonorrhea directly from Cytyc's ThinPrep Pap Test, using Roche's Cobas Amplicor Analyser. While the news seems positive, S&P feels the sell-off reflects concerns over the company's relationship with Roche, as Cytyc's pending purchase of Digene Corp. would involve some technology overlaps. Roche could potentially partner with an outside party in the chlamydia and gonorrhea markets should the FDA expand approval to Cytyc's competitors. S&P would hold Cytyc with a forward valuation at a historically modest 22 times earnings per share and five times sales.
FMC Corp.FMC): Maintains 4 STARS (accumulate)
Analyst: Richard O'Reilly
The stock down as the company offered 3.7 million common shares. While the offering is earnings per share dilutive, it will enhance the company's financial flexibility as FMC plans to refinance higher cost long-term debt later this year. FMC has also completed a strategic review of its portfolio, which may result in asset purchases/sales. While FMC has non-identified core businesses, S&P feels the agricultural chemicals business could be eventually sold. The stock is selling well below comparable chemical issues, based on multiples of EPS and cash flow.