Scientific-Atlanta (SFA) : Maintains 5 STARS (strong buy)
Analyst: Ari Bensinger
Unconfirmed media reports say that Scientific-Atlanta has hired two investment banks to explore a potential sale of the
company. Scientific-Atlanta has benefited, in our view, from a product upgrade cycle toward high definition and digital video recording set-top boxes. We note the company has not yet named a successor to 65-year-old CEO James McDonald. Given its leading market position in IP video convergence, we see the company as an attractive potential acquisition candidate for both networking and consumer electronic firms. Our
12-month target price remains $44.
Symbol Technologies (SBL) : Ups to 3 STARS (hold) from 1 STAR (strong sell)
Analyst: Dylan Cathers
The company posted third quarter earnings per share of 7 cents vs. 7 cents in the comparable year ago quarter. Although earnings per share was below our 14 cents forecast, we saw several positive signs in the third quarter and the stock is trading higher this morning. The company expects cost savings to be realized earlier than we had expected,
and it posted a number of contract wins. But, we are lowering our earnings per share estimates for 2005 and 2006 to 24 cents and 32 cents, from 47 cents and 40 cents,
reflecting challenges in certain end-markets. Accounting for our view of less risk associated with SBL's businesses, financials and execution, we are raising our discounted cash flow-based target price to $10 from $8.
Elizabeth Arden (RDEN) : Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Howard Choe
The company posted September quarter earnings per share of 6 cents vs. 16 cents, in line with our estimate. Sales rose but gross margin was lower than we expected. The Western European market, which accounts for about 16% of sales, weakened further for the company and we think it is likely to be a
drag in fiscal year 2006 (ending June). This, along with disruptions stemming from the Federated & May store consolidation in North America, has reduced sales visibility. Our fiscal year 2006 earnings per share falls to $1.23 from $1.50 to reflect a softer outlook and 12 cents for stock option expense. Our target price drops to $22 from $28, 15 times calendar 2006 earnings per share.
Men's Wearhouse (MW) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Jason Asaeda
Given shares' 9% decline since August and the company's positive sales momentum, we are upgrading to buy. U.S. comp-store sales rose 6.7% in October on above-plan performance at Men's Wearhouse and K&G. Excluding the impact of Hurricane Wilma store closures, the company says comparable growth would have been about 0.5% higher. Given the strong October quarter and what we see as easier January quarter comparables, we are lifting our fiscal year 2006 (ending January) earnings per share estimate by 6 cents to $1.79. Our target price remains $35. Though we have some concern about recent weakness in consumer sentiment, we view Men's Wearhouse as attractive at its current share price.
Burlington Northern Santa Fe (BNI) : Cuts to 4 STARS (buy) from 5 STARS (strong buy)
Analyst: Andrew West, CFA
Recent stock price increase reduces the upside to our 12-month target price. We continue to expect revenue and volume growth above industry averages for the foreseeable future, driven by the company's intermodal and coal businesses, and expect this to result in rising profitability and cash flow. However, we believe investors have become increasingly aware of Burlington Northern Santa Fe's growth potential. Reflecting recent industry valuations, we are increasing our 12-month target price to $75, from $72, based on a blend of our updated discounted cash flow and relative valuation models.
Carbo Ceramics (CRR) : Cuts to 2 STARS (sell) from 3 STARS (hold)
Analyst: Mark Basham
With the stock rising nearly 16% in the last two weeks, we think Carbo has largely corrected a deeply oversold position, in our view, after a three-week 24% drop from September end. Although we think there is a small chance the shares may retest their late-September high, we believe our projection for lower-trending natural gas prices, to which we believe Carbo's share price is significantly correlated, tends to support the shares at least retesting their mid-October bottom in the low $50s. On the higher risks we see, we are cutting our discounted cash flow-based 12-month target price by $5, to $52.
Watson Pharmaceuticals (WPI) : Cuts to 2 STARS (sell) from 3 STARS (hold)
Analyst: Herman Saftlas
Watson Pharmaceuticals posted third quarter operating earnings per share of 36 cents, vs. 42 cents, matching our estimate. Growth in generic sales of 4% is in line with our forecast, but the 6% decline in branded sales is worse than we expected. We think overall third quarter earnings per share quality was poor, with profits propped up by cutbacks in Selling, General and Administrative and Research and Development spending, and by higher interest income and fewer shares. Looking out over the next few quarters, we see increasing competition pressuring Watson Pharmaceutical's generic and branded businesses. We are lowering our target price by $4 to $29, and applying a peer-level p-e of 20 times to the $1.45 earnings per share we see for 2006.