Nike (NKE): Maintains 3 STARS (hold)
Analyst: Yogeesh Wagle
Nike posted May-quarter earnings per share of 92 cents, vs. 77 cents -- 4 cents above S&P's estimate. Sales rose 11% on double-digit growth in footwear and apparel in Europe and the Asia Pacific region. U.S. footwear slipped 3%, while apparel gained 16%. Despite a 10% decline in U.S. futures orders, largely on a drop in business from Foot Locker, S&P sees 7%-8% sales gains in fiscal 2004 (May) on strong growth abroad and in Nike's burgeoning equipment and retail businesses. Margins should widen with better sourcing and higher sales of marquee products. At 17 times S&P's $3.19 fiscal 2004 earnings per share estimate, a bit below the S&P 500, S&P believes Nike is fairly valued.
Agco (AG): Maintains 3 STARS (hold)
Analyst: James Sanders
Agco announced second-quarter earnings per share guidance today at 30 cents to 35 cents, significantly below S&P's 43 cents estimate and the Street's 44 cents. The agriculture-equipment manufacturer cited costs from the transition of production from its facility in England to its facility in France. S&P is disappointed by this news, but continues to believe that overall agricultural industry conditions are improving. S&P's discounted cash flow model, with a long-term, free-cash flow growth assumption of 5%-6%, indicates Agco shares are currently trading at a modest premium to the high end of S&P's estimated fair-value range of $16-$17.
Tektronix (TEK): Upgrades to 2 STARS (avoid) from 1 STAR (sell)
Analyst: Bryon Korutz
Tektronix posted May-quarter earnings per share of 12 cents, vs. 14 cents, before one-time items, which was 5 cents better than S&P's estimate. Sales were flat, with improved foreign sales offsetting a drop in domestic sales. Earnings were limited by greater R&D and selling, general, and administrative expenses expenses. S&P is trimming the fiscal 2004 (May) earnings per share estimate to 63 cents, from 65 cents, reflecting S&P's lower sales projection. Orders have begun to rise, and with end markets stabilizing, S&P believes the outlook has started to improve. But with shares trading at 35 times S&P's fiscal 2004 estimate, a significant premium to the S&P 500, S&P would avoid these shares.
Fox Entertainment (FOX): Maintains 4 STARS (accumulate)
Analyst: Tuna Amobi
The annual FCC Reauthorization Bill seeks to extend the review cycle for media rules to four years, from two years. The committee also amplified a review standard of "modify or eliminate," to include "strengthen or retain." Consistent with last week's re-regulation bill, the committee also moves to end, by 2008, the 50% UHF TV-station power discount vs. VHF stations, thus eliminating the FCC's tie-in to the completion of the digital transition. While floor opposition looms, S&P views these stearnings per share as responses to key procedural and substantive issues of widespread dissent with the FCC's 6-2 de-regulation action.