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S&P Says Accumulate Applied Materials

Applied Materials (AMAT): Maintains 4 STARS (accumulate)

Analyst: Richard Tortoriello

Applied Materials posted July-quarter earnings per share of 5 cents before 7 cents in restructure charges, vs. earnings per share of 7 cents, on 25% lower sales -- a penny above S&P's estimate. Orders rose 8% from the April quarter. The company expects a 10% rise in October-quarter orders from the July quarter, but flattish sales and earnings. S&P sees fiscal 2003 (Oct.) earnings per share at 14 cents, and fiscal 2004's at 48 cents. However, S&P sees potential upside should a stronger economy stimulate 2004 chip sales, increasing the need for 300mm capacity. S&P is raising the target price to $22 from $18, based on Applied Materials' historical average of five times the book value, and thinks the stock is attractive at 3.9 times the book value.

May Department Stores (MAY): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Jason Asaeda

July-quarter operating earnings per share of 30 cents vs. 34 cents is in line with S&P's estimate. Net sales fell 1.0% on a 3.1% same-store sales decline. Results exclude a 69-cent charge related to the divestiture of 34 Lord & Taylor stores, which S&P views as a good step toward improving long-term profitability. S&P is reiterating the operating earnings per share estimate of $1.80 for fiscal 2004 (Jan.), and sees fiscal 2005 at $2.00. S&P believes that limited catalysts to improve near-term sales and earnings per share warrants the stock's discounted p-e to peers. However, based on the potential payoff of May's turnaround efforts, S&P would hold shares.

Abercrombie & Fitch (ANF): Maintains 3 STARS (hold)

Analyst: Yogeesh Wagle

July-quarter earnings per share of 35 cents vs. 31 cents beat S&P's estimate by a penny. Despite a 8% same-store sales decline, largely on weakness at adult A&F stores, operating margin improved 40 basis points on higher markups and reduced promotions. The Hollister segment was up by double-digit percent. A&F expects third-quarter earnings per share flat to slightly higher. S&P is cutting the earnings per share estimates to $2.18 from $2.23 for fiscal 2004 (Jan.), and to $2.51 from $2.58 for fiscal 2005. Although the shares are below peers at 12 times S&P's fiscal 2005 estimate, given S&P's view of the lack of signs of improvement in store comparisons, S&P would hold.

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