Andrx (ADRX ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Herman Saftlas
Andrx agreed to waive its 180-day marketing exclusivity rights on generic Prilosec to Schwarz Pharma AG. In return, Schwarz will share a part of its generic Prilosec profits (pending FDA approval) with Andrx and Genpharm. Each company's share reduces from 15% to 6.25% over time. Prilosec has U.S. brand sales of over $3 billion. S&P also sees the possible launch of generic forms of Wellbutrin and Tiazac in the coming months. With an R&D pipeline including 30 abbreviated new drug applications, and while trading at a discount to peers, S&P views Andrx as attractive.
H&R Block (HRB ): Downgrades to 3 STARS (hold) from 5 STARS (buy) Analyst: Michael Jaffe
Shares are much lower after the tax preparation company responded to rumors about possible litigation liabilities. H&R said that claims in suits related to its tax refund anticipation loans were substantial, but the company did not see them having a material impact on its results or financial position. S&P remains positive on H&R's tax business, but its mortgage business might be near a peak and litigation provides another worry. Shares are modestly valued at only 13 times S&P's $3 earnings per share estimate for fiscal 2003 (April), but in this time of corporate mistrust, S&P would not add to positions.
O'Reilly Automotive (ORLY ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Leo Larkin
S&P believes shares of this highly profitable specialty retailer of automotive parts are attractively valued based on S&P's conservative estimate of $1.85 for 2003. O'Reilly's sales and earnings per share stand to benefit from a rise in the number of miles driven and an increase in the average age of cars. With its strong finances, steady earnings per share growth and its expansion potential via industry consolidation, S&P says O'Reilly Auto is worth accumulating.
Microsoft (MSFT ): Reiterates 4 STARS (accumulate)
Analyst: Jonathan Rudy
A federal judge is expected to decide whether to uphold the previously announced antitrust settlement, or impose a tougher remedy on Microsoft, as proposed by the nine remaining states in opposition to the agreement. While the prior agreement with the government increases the chances that the current agreement will be upheld, it is by no means a certainty at this point. Despite this uncertainty, S&P believes that Microsoft remains attractive on its solid business fundamentals and financial strength.
Cigna (CI ): Maintains 2 STARS (avoid)
Analyst: Phillip Seligman
Cigna posted third quarter operating earnings per share of $1.49 -- two cents above company guidance, vs. the year-ago FAS 142-adjusted $1.74 after a charge for the impact of September 11. Poor underwriting, inefficient IT upgrades, and poor investments point to poor execution. Cigna replaced managers and plans restructuring, but success here, too, depends on execution. S&P is also concerned that rivals will take advantage of Cigna's focus on the fix by seeking its profitable accounts. Note, too, that possible physician exits from its provider networks over payment disputes would also weaken competitiveness.
Tenet Healthcare (THC ): Reiterates 5 STARS (buy)
Analyst: Robert Gold
The stock is down as a U.S. Attorney's Office in Sacramento looks into allegations that two physician's practicing in Tenet's Redding Medical Center performed unnecessary surgeries and filed false claims. Tenet notes a rumor about a FBI search of its headquarters are unfounded. S&P would expect that this is a physician-specific rather than institutionalized event. The stock has been under severe pressure on concerns over Medicare outlier payments. S&P feels shares are way oversold at 9.7 times S&P's fiscal 2003 earnings per share estimate, and 0.9 times sales and 6.5 times the free cash flow.