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Merrill Keeps 'Buy' on Lexmark


Merrill Lynch reiterates its buy rating on Lexmark International (LXK).

Analyst Steven Milunovich says the revenue upside was driven by inkjet all-in-one shipments. He says the $430 million in hardware sales were below his aggressive $440 million estimate, but above the Street's estimate. Also, he notes gross margin was 32.1%, vs. 34%, in the second quarter, as Lexmark's hardware mix increased.

Milunovich says Lexmark expects more price aggression in the fourth quarter, and has already built it into its guidance. He notes selling, general, and administrative costs were down sequentially, which contributed to the earnings surprise. Milunovich thinks printers is one of the most attractive areas in technology. He expects to revise the $3.02 2003 earnings per share estimate upward. He has a $76 target.


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