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S&P Lowers Barnes & Noble to Hold

Barnes & Noble (BKS): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: William Donald

The bookseller cut its expected range of fiscal 2003 (Jan.) bookstore earnings by seven cents, to $1.19 to $1.31 from an earlier guidance of $1.72 due to sluggish fourth quarter sales. Barnes & Noble now sees same-store sales flat to down 3%. The news follows Wednesday's announcement that the 60%-owned GameStop would also have disappointing earnings on weak holiday selling. S&P has lowered its fiscal 2003 earnings per share estimate to $1.43 from $1.76, and cut the fiscal 2004 estimate to $2.00 from $2.23. S&P also trimmed the fiscal 2005 estimate to $2.40 from $2.65. The stock appears to have already adjusted to the lowered expectations.

Bed Bath & Beyond (BBBY): Reiterates 4 STARS (accumulate)

Analyst: Yogeesh Wagle

Bed & Bath posted 25 cents vs. 18 cents November quarter earnings per share, two cents above S&P's estimate. Net sales grew 23% on an 8% gain in same-stores sales and double-digit growth in square footage. Bed & Bath raised the fiscal 2003 (Feb.) earnings per share guidance to 98 cents, from 95 cents. S&P sees ongoing demand for the company's assortment of lower-priced home furnishings and domestics, given the strength of the housing market. With its strong balance sheet and consistent history of execution, S&P believes shares have appeal at 29 times the $1.19 fiscal 2004 earnings per share estimate, a justified premium to the S&P 500.

Semtech (SMTC): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Megan Graham Hackett

A recent correction in Semtech shares has brought its valuation more closely in line with our price targets for the stock. While the shares still trade at a premium to peers, the premium has narrowed and is reasonable given the company's net margins (near 20%) and cash position of nearly $5 per share. With some of the excesses taken out of the stock, S&P believes the shares should trade more in line with the overall market over the next six-to-twelve months.

Jack in the Box (JBX): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Dennis Milton

The fast-food chain cut its guidance for fiscal 2003 (Sept.) to $2.01-$2.04, from $2.42. Aggressive discounting by Burger King and McDonald's has impacted sales, causing Jack in the Box to lower its expectations for same-store sales and profit margin. S&P has reduced its fiscal 2003 earnings per share estimate by 39 cents, to $2.03, in line with guidance. At only eight times this estimate, shares trade at a steep discount to peers. However, the slow-growth economy and difficult competitive environment could stall expansion plans and even lead to store closings.

Electronics Boutique (ELBO): Reiterates 4 STARS (accumulate)

Analyst: Marcos Kaminis

Rival GameStop lowered its fourth quarter guidance, and now anticipates 4%-6% lower same-store sales. Industrywide November same-store sales were below expected, and the adjustment has occurred in the prices of video gaming stocks. S&P thinks this is partly because of the late start of the holiday season, which should inflate late December results. Fourth quarter earnings per share growth estimates were higher for GameStop than Electronics Boutique, but S&P thinks Electronics Boutique could lower its guidance to six cents below S&P's prior fiscal 2003 (Jan.) estimate of $1.71. With shares trading at 11 times the $1.65 expected earnings, Electronics Boutique is attractive for contrarians.

Quiksilver (ZQK): Maintains 5 STARS (buy)

Analyst: Yogeesh Wagle

The clothing retailer posted fourth quarter fiscal 2002 (Oct.) earnings per share of 49 cents vs. 10 cents, six cents above the Street's mean. Results were driven by 15% sales growth in Europe, a favorable currency translation and successful marketing events. S&P sees 18% to 20% sales growth in fiscal 2003 on continued penetration in the faster-growing West European markets, strong holiday bookings, aggressive brand support and the November 2002 acquisition of Quicksilver's licensees in Australia and Japan. S&P would buy the shares at 15 times the upwardly revised fiscal 2003 earnings per share estimate of $1.80, in line with the S&P SmallCap 600.

Oracle (ORCL): Reiterates 4 STARS (accumulate)

Analyst: Jonathan Rudy

November quarter earnings per share of 10 cents vs. 10 cents is two pennies above estimates. Revenues declined 3%, slightly better than S&P's estimate. Oracle experienced a slight rebound in Europe. Operating margin remained strong at 34%. S&P expects a low, single-digit revenue decline in fiscal 2003 (May) but has raised the earnings per share estimate to 41 cents from 39 cents, and see 42 cents in fiscal 2004. With a mid-30% return on equity, operating margins in excess of 30%, and about $5.5 billion in cash/investments with little debt, S&P believes that this database software leader remains attractive at a discount to the intrinsic value.

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