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S&P Keeps Buy on Adobe

Adobe Systems (ADBE): Reiterates 4 STARS (buy)

Analyst: Scott Kessler, Zaineb Bokhari

Adobe Systems posted August quarter earnings per share of 29 cents vs. 21 cents, 3 cents above our forecast. Revenues rose 21%, modestly above our views, reflecting continued strength in Creative Suite and Acrobat sales. Operating margins widened from a year ago, aided by lower litigation and bad debt expense in the quarter; we expect operating margins to narrow modestly in the November quarter. We are raising our fiscal year 2005 (ending November) earnings per share estimate to $1.12 from $1.09 to reflect August quarter results; fiscal year 2006's estimate remains $1.20. Our discounted cash flow-based 12-month target price remains $34.

Hologic (HOLX): Upgrades to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Robert Gold

The shares rose Friday on a landmark trial by independent third parties that shows significant improvement from use of

digital mammography to detect breast cancer among premenopausal women below 50 and among those with dense breast tissue. We think results can meaningfully impact market conversion, driving higher demand for the company's Selenia System. We maintain our fiscal 2006 (Sep.) sales estimate at $324 million. But we are raising our target price by $27 to $72, based on a price-to-sales multiple of 5.0 times, above our device coverage group but in line with similar small-cap-growth device names.

Sealed Air (SEE): Reiterates 4 STARS (buy)

Analyst: Stewart Scharf, Andrea West, CFA

Following Sealed Air's comments on Hurricane Katrina's likely impact on results, we are reducing our 2005 earnings per share estimate to $2.75 from $2.85. This reflects our expectation that escalating petrochemical-based raw material and other energy-related costs will pressure profit margins. However, we forecast margin improvement next year, driven by supply chain improvements, cost-cutting programs and moderating energy costs, and we are retaining our 2006 earnings per share estimate of $3.25. We are also reiterating our 12-month target price at $61, based on a blend of our discounted cash flow and relative valuation models.

InFocus (INFS): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

InFocus announced major restructuring efforts and management changes, which we believe are overdue. Included in the company's plan to restore profitability by the first half of 2006 is a 20% to 25% reduction in its operating expenses, the replacement of the chief financial officer by vice president and Controller Roger Rowe, and the resignation of the chairman of the board. We are most encouraged by InFocus's sales reorganization and exit from the thin display market, which we don't believe would have earned its cost of capital. Given these new efforts, and the company's $2 a share in cash/investments, we view InFocus as worth holding.

Owens-Illinois (OI): Cuts Opinion to 2 STARS (sell) from 4 STARS (buy)

Analyst: Stewart Scharf

Owens-Illinois lowered its 2005 earnings per share guidance late Thursday, citing rising energy and other costs. We see further strength in sales of glass containers, mainly on demand for wine and spirits, but we expect the company's results to be hurt by a time lag in raising prices to offset rising raw material and energy costs, as well as by higher SG&A expense. We see 2005 debt reductions below $150 million, down from our earlier forecast of $175 million. We are cutting our 2005 earnings per share estimate by 30 cents to $1.65, and 2006's by 40 cents to $2.05. Applying a below-peer forward p-e of 12 times to our 2005 estimate, we are cutting our 12-month target price by $11 to $20.

Trinity Industries (TRN): Reiterates 4 STARS (buy)

Analyst: Stewart Scharf

Trinity raised its third quarter and 2005 earnings per share guidance late Thursday, in order to reflect efficiencies in North American railcars and strength in its construction businesses, which offset Katrina's minimal impact on inland barges. We see wider margins, mostly from better railcar productivity, growth in construction products, and profitable inland barge segment. We are lifting our third quarter estimate to 53 cents from 47 cents, full 2005's to $1.39 from $1.35, and 2006's to $2.75 from $2.50. Now 14 times the 2006 estimate, and a bit below peers, we think Trinity's shares deserves a p-e above the historical average; thus, we are raising our target price $2 to $46.

Best Buy (BBY): Up to 4 STARS (buy) from 3 STARS (hold)

Analyst: Amy Glynn, CFA

Our upgrade comes after a 12% decline in Best Buy's stock price this week. Although we have some concerns about the overall strength of the holiday season, we see Best Buy as the retailer best-positioned to benefit from demand for hot consumer electronic products. Also, we think high-margin service revenue should help the company offset the potential impact on its gross margin of heavy promotions. Longer term, we see the customer-centricity initiative translating into higher sales and margins. We see fiscal year 2006 (ending February) earnings per share of $2.13 and fiscal year 2007's of $2.45. Our 12-month target price remains $50.

Annaly Mortgage Management (NLY): Cuts to 1 STAR (strong sell) from 2 STARS (sell)

Analyst: Robert McMillan

Annaly Morgage Management cut its quarterly dividend to 13 cents, from 36 cents paid last quarter. We believe that continuing increases in short-term rates contributed to high prepayments and spread compression. We think the Fed will continue near term to raise rates, hurting Annaly Morgage Management results. Looking ahead, we think long-term rates will rise, causing prepayments to slow dramatically and having a beneficial effect on Annaly Morgage Management's largely variable-rate securities. We are lowering our 2005 earnings per share estimate to $1.04 from $1.38, 2006's to 81 cents from $1.50, and our target price by $4, to $10, based on updated p-e analysis.

Tektronix (TEK): Maintains 3 STARS (hold)

Analyst: Stuart Benway

Tektronix posted September quarter earnings per share of $0.25, down 42% from September quarter fiscal year 2005 (ended May), but 2 cents ahead of our, and the consensus, view. Sales fell 6.1% despite the acquisition of Inet a year ago. We are reducing our earnings per share estimate for fiscal year 2006 to $1.30 from $1.40 because we think development costs for new products are unlikely to be offset by higher sales until late in the year. For fiscal year 2007 we are raising our earnings per share estimate to $1.50 from $1.39, due to the impact of expected sales gains of new signal source products. Our 12-month target price rises to $28 from $26 to reflect our increased fiscal year 2007 earnings per share estimate.

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