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Still Hold Disney


Walt Disney (DIS): Reiterates 3 STARS (hold)

Analyst: Thomas Graves

Disney posted pro forma June quarter EPS of $0.17 vs. $0.29, matching the Street consensus estimate but coming in one penny below S&P's forecast. However, the company notes recent weakness in its theme park business and indicates that Q4 EPS is likely to fall short of recent analyst estimates. We're cutting our full fiscal 2002 (ending September) EPS estimate to $0.53 from $0.60, and our fiscal 2003 projection to $0.67 from $0.80. We like future prospects for DVD demand, and benefits from international theme park openings, but Disney remains at a premium p-e vs. the S&P 500, and we have some concern about historic levels of unexpensed options.

Walgreen (WAG): Still 4 STARS (accumulate)

Analyst: Joseph Agnese

The drugstore chain reported July sales up 16.6%, reflecting comparable-store sales growth of 11% and progress in its expansion program. Prescription sales continued their strong performance, with comparable sales rising 17.5%. Non-pharmacy sales were up 1.8%, slightly weaker than expected, vs. 3.4% growth in June. We see margins pressured by increased promotional expense and a shift in the sales mix to prescription sales. However, though the shares are trading at 30 times our fiscal 2003 (ending August) EPS estimate of $1.18, above its peers, this clear industry leader should benefit from long-term earnings consistency.

Stanley Works (SWK): Keeping 3 STARS (hold)

Analyst: Efraim Levy

The company says it will not reincorporate in Bermuda, a move that would have reduced its corporate tax rate. Our earnings forecasts were based on U.S. tax rates. As such, we still project EPS of $0.73 for the third quarter, and $2.77 for full 2002 after $0.06 from the elimination of goodwill amortization, and $3.19 in 2003. Stanley seems attractive at 11 times our 2003 forecast, but with near-term demand looking weak and after July's toned-down guidance from the company, we recommend holding current positions.


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