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S&P: Still Buy Home Depot

Home Depot (HD): Maintains 4 STARS (buy)

Analyst: Michael Souers

Home Depot posted January-quarter earnings per share of 47 cents, vs. 42 cents, a penny shy of our estimate. Revenues increased 11%, including same-store sales growth of 4.6%. While we expect organic sales growth to slow modestly in fiscal 2006 (ending January) due to a projected slowdown in the domestic housing market, we are keeping our buy opinion on Home Depot shares due to our views of the company's strong free cash flow generation, sound balance sheet and prospects for international growth. Our fiscal 2006 earnings per share estimate remains $2.58, and we are setting our fiscal 2007 estimate at $2.95. Our 12-month discounted-cash-flow-based target price remains $48.

Novartis (NVS): Reiterates 3 STARS (hold)

Analyst: David Seemungal, Herman Saftlas

Novartis plans to acquire two major generic drug firms, Hexal AG and Eon Labs, for $8.3 billion, or 3.9 times the combined sales of both companies. These acquisitions, pending necessary approvals, should create the world's largest generic business, with over $5 billion in sales. We think the move is motivated by strategy to counterbalance risks of branded business, and the need to gain market share in rapidly growing generic markets in the U.S. and Germany. We see the deal consummating in the ssecond-half of 2005, turning accretive within 12 months. Our $53 target price is based on blend of forward p-e and discounted-cash-flow assumptions.

AstraZeneca (AZN): Downgrades to 3 STARS (hold) from 5 STARS (strong buy)

Analyst: David Seemungal, Herman Saftlas

Following a strong full-year of 2004 results and the recent rally in the drug sector, AstraZeneca reached our 12-month target price of $42. We expect key drugs such as Seroquel and Nexium to allow AstraZeneca to achieve top-line growth comparable to the sector. With little debt, and cash reserves of $4 billion, we think AstraZeneca also can buy in promising drugs. But, we believe what we see as its relatively weak current pipeline will be challenged to support above-average sales and earnings growth in the years ahead. We reiterate our target price of $42, based on a combination of discounted-cash-flow and multiple-based comparisons.

Credit Suisse Group (CSR): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Derek Chambers

Credit Suisse posted 2004 earnings per ADR of $4.08, 4% above our estimate. Results were aided by lower operating expenses and credit costs. We believe private banking remains the main source of value for Credit Suisse. Assuming lower operating and credit costs, we are increasing our earnings per ADR projection by 20 cents to $4.26 in 2005, and by 28 cents to $4.59 in 2006. We are also raising our target price by $3 to $49, 10.6 times our 2006 earnings estimate, based on our belief that the ADRs deserve a premium to major European banks, but are likely to sell at a discount to UBS AG on a p-e basis.

Federated Department Stores (FD): Maintains 3 STARS (hold)

Analyst: Jason Asaeda

January-quarter operating earnings per share of $2.55, vs. $2.29 beats our estimate by 3 cents, on lower advertising expense and share buybacks. In fiscal 2006 (ending January), we look for Federated to better leverage its strong Macy*s brand, to remain focused on more exclusive, higher quality goods, to improve customer perceptions of fair value in less discounted prices, and to maintain strong free cash flow. We are reiterating our full-year revenue target of $15.9 billion and our operating earnings per share estimate of $4.60. Blending updated p-e, price/sales and discounted cash flow models, we are raising our 12-month target price by $2 to $60.

Nissan Motor (NSANY): Maintains 3 STARS (hold)

Analyst: C. Lee, James Peters, CFA

Nissan has appointed a new COO, Toshiyuki Shiga, a month before CEO Carlos Ghosn assumes additional duties as CEO of parent company Renault. Mr. Shiga, currently a senior vice president for general overseas markets, excluding the U.S., Japan and Europe, has been employed at the company for 29 years. He is known to have helped Nissan form a joint venture with Dongfeng Auto, the third largest car maker in China, to manufacture Nissan cars in China. We are maintaining our $24 12-month target price.

Omnicom Group (OMC): Reiterates 4 STARS (buy)

Analyst: James Peters, CFA

Omnicon posted fourth-quarter earnings per share of $1.28, vs. $1.12, beating our estimate by 2 cents. Revenues rose 11.3%, including 6.4% from organic growth and 4.1% from forex. Omnicon's full 2004 operating margin narrowed to 12.3% from 12.9% on higher salary and service costs. We see a slight operating margin improvement in 2005 on 12% revenue growth. We are raising our 2005 earnings per share estimate to $4.47 from $4.40, and keeping our target price of $95, based on our blended discounted-cash-flow-based valuation and 21 times our 2005 earnings per share estimate. We continue to believe Omnicon will outperform peers on revenue and earnings per share growth in 2005 and 2006.

Hormel Foods (HRL): Reiterates 3 STARS (hold)

Analyst: Joseph Agnese

Hormel reported January-quarter operating earnings per share of 46 cents, vs. 37 cents, at the top end of 40 cents to 46 cents guidance and 3 cents above our expectation. Net sales grew 12% on 4% volume growth, reflecting improved product mix, strong demand for poultry and pork products and acquisitions. Margins benefited from increased sales of value-added product lines and a more favorable feed environment. Hormel raises fiscal 2005 (ending October) earnings per share guidance by 5 cents to $1.70 to $1.80. We are raising our fiscal 2005 earnings per share estimate by 5 cents to $1.75 on stronger-than-expected demand, and our 12-month target price by $2 to $34, based on p-e analysis.

Coventry Health (CVH): Reiterates 5 STARS (strong buy)

Analyst: Phillip Seligman

Fourth-quarter operating earnings per share of $1.01, vs. 76 cents, on better-than-expected member growth, beats our estimate by 3 cents. Coventry sees modest increases in enrollment, despite a large account loss, and premium yield and medical loss ratio in 2005. We expect a sharp rise in selling, general, and administrative cost ratio on the acquired First Health's higher costs. We see 20%-plus annual earnings per share growth in the next 3 to 5 years, as Coventry imposes a lower cost structure on First Health, uses First Health's national provider network to add HMOs, and attracts new accounts due to larger network. Our $77 target price is a modest peer-premium of 17 times our $4.55 2005 earnings per share estimate.

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