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S&P: Buy Constellation Energy


Constellation Energy (CEG): Reiterates 5 STARS (buy)

Analyst: Craig Shere, CFA

Constellation Energy posted second-quarter operating EPS of 51 cents, vs 58 cents, 12 cents above our estimate, before 21 cents in realized synfuel tax credits and a 4-cent gain on a Pacific Gas & Electric receivable. Results were aided by strong merchant energy customer originations and better weather. We're keeping our 2004 EPS estimate at $3.25, now within (though at the top end) of the company's just-increased guidance, and $3.55 for 2005. We believe Constellation would be fairly valued at just over a 12 times the 2005 p-e, compared with peer utilities at 13.4. From this fair value, we expect appreciation in line with our projection of long-term 8% EPS growth.

Gilead Sciences (GILD): Maintains 4 STARS (accumulate)

Analyst: Frank DiLorenzo, CFA

The biotech firm's second-quarter EPS of 49 cents, vs. 46 cents is 10 cents above our estimate on strong sales and lower costs than expected. Viread sales of $197.2 million were $8.4 million above our projection and 18% higher than a year ago. Hepsera sales of $28 million were $5.6 million above our forecast. We're raising our 2004 Viread sales forecast to $808 million, from $782 million, and assume FDA approval on a combination tablet of Viread and Emtriva in September, with a launch shortly after. We're raising our 2004 EPS estimate to $1.77 from $1.66, and 2005's to $2.05 from $1.97. On a discounted cash-flow analysis, we're raising our 12-month target price to $75 from $72.

THQ, Inc. (THQI): Maintains 2 STARS (avoid)

Analyst: Jonathan Rudy, CFA

The June-quarter loss of 10 cents, vs. a 9-cent loss, is 1 cent wider than our estimate. Revenues of $88 million were also below our estimate. Results were driven by sales of the Full Spectrum Warrior title. THQ is delaying the launch of The Punisher, and Stalker: Shadow of Chernobyl, to the March quarter from the September quarter. This is usually not a good sign, in our opinion. Additionally, THQ's COO resigned. Our fiscal 2005 (Mar.) EPS estimate remains $1.00. Despite a strong balance sheet, in our opinion, and trading at a discount to peers on a p-e basis, with management turnover and a weaker product lineup than peers, we would avoid.


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