Abercrombie & Fitch (ANF ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)
Analyst: Marie Driscoll
Specialty retailer Abercrombie reported December comp-store sales down 13%, with teen-concept Hollister stores negative for the third straight month -- at down 1%. S&P is lowering the sales and margin assumptions and trimming the fourth-quarter earnings per share estimate to 92 cents, from 95 cents. S&P now sees fiscal 2004 (Jan.) and fiscal 2005 earnings per share at $2.03 and $2.26, cut from $2.06 and $2.32. Despite a 43% price-earnings discount to the S&P 500 on calendar 2004 estimates, S&P thinks the absence of a near-term catalyst, such as positive comp-store sales trends or a new retail concept, is cause for a lower 12-month target price of $30, cut from $35, which assumes a 35% discount to the S&P 500.
Inamed (IMDC ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)
Analyst: Robert Gold
Late Wednesday, Inamed received a "not approvable" letter from the Food and Drug Administration regarding its pre-marketing application for silicone gel-filled breast implants. In S&P's opinion, data from Inamed's trials and findings from third-party studies provide sufficient basis for FDA approval, but the ultimate timing of a commercial launch is increasingly challenging to forecast. S&P is waiting for further details from both the FDA and Inamed, but believes it would not be prudent to add to positions pending clarity on the issue. S&P is placing the 2004 earnings per share forecast under review.
Altria (MO ): Maintains 4 STARS (accumulate)
Analyst: Anishka Clarke
Altria will close its Rye Brook, N.Y. office in an ongoing effort to streamline operations. The facility housed mainly employees of its Kraft Foods subsidiary, with some Philip Morris and corporate services staff. S&P is encouraged by Altria's efforts to reduce its cost structure as it faces declining demand and strong competition in the U.S. S&P still sees earnings per share rising to $4.90 in 2004, up from the $4.61 2003 estimate. At 11 times S&P's 2004 projection, the tobacco and food manufacturer is trading in line with peers. S&P believes the shares deserve a premium, based on Altria's strong cash flow and dominant market position.
Procter & Gamble (PG ): Maintains 5 STARS (buy)
Analyst: Howard Choe
With stronger sales of cold and flu products in North America, and greater volumes in developing markets, Procter & Gamble expects to exceed S&P's $1.25 estimate for the December quarter. S&P is raising the estimate to $1.28, and rhe full-year fiscal 2004 (June) estimate to $4.55, from $4.53. The consumer-products maker's increased focus on the developing markets appear to be paying off as it expects mid-teens or better volume growth. Given the earnings upside, S&P is raising the 12-month target price to $118, from $114, and views the shares as attractively valued at a nearly 20% discount to S&P's discounted cash-flow value and target price.
Anheuser-Busch (BUD ): Maintains 5 STARS (buy)
Analyst: Anishka Clarke
Shipments to wholesalers of 102.6 million barrels in 2003 increased 0.8% from 2002, with sales to retailers rising slightly more at up 0.9%. The beer and beverages manufacturer sees 12% earnings per share growth in 2004 with the pricing environment remaining favorable. Accordingly, S&P's 2004 earnings per share estimate of $2.79, up 12.5% from S&P's $2.48 2003 estimate, is based on continued growth in sales driven by pricing, and on margin expansion. S&P's 12-month target price of $63 combines S&P's $65 intrinsic value estimate and a peer p-e of 21 times S&P's 2004 estimate. At 18 times this estimate now, S&P recommends purchase of Anheuser-Busch shares.