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S&P Says Hold Apple Computer

Apple Computer (AAPL): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

Apple announced the first deal it has struck to enable its iTunes music jukebox to be used on a cell phone. Users are expected to be able to transfer songs downloaded via iTunes from their personal computer to Motorola's next-generation mobile phones. Terms of the pact weren't disclosed and there is no change to our EPS estimates, although Apple's CEO Steve Jobs intimated that he sees further opportunities for iTunes in the mobile-phone market. At a price-sales ratio of 1.6, Apple trades above the peer average, but with $12 per share in cash and equivalents, we view the shares as worth holding.

Pitney Bowes (PBI): Maintains 4 STARS (accumulate)

Analyst: Stephanie Crane

Second-quarter EPS of 62 cents, vs. 59 cents beat our 60 cents estimate. GAAP EPS was 58 cents vs. 50 cents. Revenue rose 6% to $1.12 billion. Global Mail grew 5% on growth in small-business solutions, including hardware, services and supplies, as well as pre-sort mail services. Pitney's new digital-mailing systems continue to see solid demand worldwide. We estimate EPS of 64 cents in the third quarter and $2.51 for full-year 2004. At 16 times our 2004 estimate, Pitney is at discount to its historical range and to the S&P 500. We project solid free cash flow, and see stock buybacks. Pitney's dividend is currently yielding 2.9%.

Scotts (SMG): Reiterates 4 STARS (accumulate)

Analyst: Stewart Scharf

Scotts posted June-quarter EPS of $3.06 before 5 cents in charges, vs. a year-ago's $2.85, 4 cents below our estimate but a penny better than the Street. Sales rose 9%, after 1% positive foreign exchange, on growth in North American consumer-branded products and lawn service. We see nearly 8% sales growth for fiscal 2004 (Sep.), and strong demand and cost controls continuing in fiscal 2005. Scotts is exploring its options for its international operations. Shares trade at 13 times our $4.55 fiscal 2005 estimate, below peers and the S&P MidCap 400. Our 12-month target price is $71, which applies an average forward peer p-e to our fiscal 2005 estimate.

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