Harrah's Entertainment (HET): Upgrades to 5 STARS (buy), from 4 STARS (accumulate)
Analyst: Thomas Graves
S&P expects that investors will seek to benefit from improving consumer confidence, but with wariness about the environment for long-distance and international travel. S&P thinks the casino operator's broad geographic diversity in the U.S., plus its expected ability to generate free cash flow and further build customer loyalty, should enhance the stock's appeal. Based on an estimated earnings per share of $3.10 for 2003, the stock is at a p-e discount to both peers and the S&P 500. Both S&P's long-term discounted free cash flow model, and putting a p-e of 15 on the estimated $3.35 2004 earnings per share provides for a $50 6-to-12 month target.
Allstate (ALL): Maintains 5 STARS (buy)
Analyst: Catherine Seifert
S&P is trimming its second-quarter operating earnings per share estimate by 7 cents, to 75 cents, to reflect the likelihood that Allstate will incur losses from the April/May midwestern storms. Partly offsetting this are the improved underlying claim trends (before the impact of catastrophes) that S&P believes have emerged. As a result, S&P is keeping its full-year 2003 operating earnings per share estimate of $3.40. At current levels, the shares trade at a discount to their peers. S&P has a 6-to-12 month price target of $41-$42, or 12 times its 2003 estimate, which approximates the peer group average.
Coventry (CVH): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)
Analyst: Phillip Seligman
S&P sees Coventry as one of the strongest managed-care players over the long term. Not only has the company proven adept at assimilating acquisitions, but it has also shown strong pricing discipline, healthy internal growth, and below-peer medical cost trends. Despite good year-to-date returns, its shares still trade at a discount to the peer average on both the estimated forward p-e and forward p-e-to-long-term-growth ratios, based on S&P's 2003 earnings per share estimate of $3.50. Hence, S&P thinks Coventry has above-average price appreciation potential.
Tenet Healthcare (THC): Maintains3 STARS (hold)
Analyst: Phillip Seligman
S&P believes Jeffrey Barbakow's resignation, effective immediately, as CEO of Tenet removes one of the factors overhanging its stock. Along with his planned resignation from the board and the recruitment of new independent board members, this should help improve corporate governance, where S&P thinks Tenet has been deficient, with policies and practices that led to investor and public distrust. S&P sees limited upside for Tenet amid other overhangs, such as potential lawsuits, government probes, possible rating agency downgrades and bad press.
Computer Sciences (CSC): Reiterates4 STARS (accumulate)
Analyst: Richard Stice
Tuesday morning, Computer Sciences announced an IT outsourcing agreement with Marconi, a U.K.-based, global telecom equipment company. Under the terms of the contract, valued at $735 million over 10 years, Computer Sciences will support and manage Marconi's IT help desk, develop and maintain software applications, and provide telecom services. S&P views the deal positively as it should further strengthen Computer Sciences' international presence in the IT services market. Trading at discount to broader market on a p-e and p-e-to-growth basis, S&P believes Computer Sciences remains attractive.
Vodafone (VOD): Maintains 4 STARS (accumulate)
Analyst: Todd Rosenbluth
Vodafone posted 6.81 pence vs. 5.15 pence fiscal 2003 operating earnings per share, before goodwill amortization and other items. Revenues were up 33%, higher than S&P expected, amid stake increases in multiple markets, relative strength in Japan and the U.S., and increased data usage. Results were also helped by customer retention and a lower tax rate. S&P is encouraged that Vodafone raised its dividend payout. S&P sees some risks related to an upcoming CEO change and the rollout of 3G, but with less competitive pressures and a global presence, S&P would add to positions.