Electronic Data Systems (EDS ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)
Analyst: Richard Stice, CFA
S&P believes EDS faces several challenges in coming months as it attempts to alter underperforming contracts and deal with intense competition. However, with its share price declining over 20% so far in 2004, S&P believes further downside risk is limited. At last week's analyst meeting, EDS touted an improving liquidity position, a revamped management team, and growth potential in the business process outsourcing market. While execution on its many opportunities remains a concern, S&P thinks this is now being accurately reflected in the share price. S&P's 12-month target price is $20.
Emulex (ELX ): Reiterates 5 STARS (buy)
Analyst: Richard Stice, CFA
Shares are down about 9% this morning on no discernible news. S&P notes that the company's December-quarter earnings results, released in late January, indicated broad demand across geographies for Emulex's products. The company remains the industry leader for Fibre Channel host bus adapters, which are components used in networked storage configurations, with a market share of nearly 50%. The shares trade at a discount to their historical price-to-sales average and to S&P's intrinsic value calculation. S&P's 12-month target price is $38. S&P views the decline as an enhanced buying opportunity.
Coach (COH ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Marie Driscoll, CFA
Coach raised the March-quarter guidance to 26 cents earnings per share on at least $300 million in sales, and raised the June-quarter estimate to 26 cents earnings per share on at least $315 million sales, with all business channels participating in the momentum. S&P thinks that U.S. retail comp-store gains are double digit, and thinks domestic and international business wholesales are accelerating. S&P is raising the second-half sales estimate by 4%, to $617 million, upping the fiscal 2004 (Jun.) estimates to $1.25, from $1.20, and upping the 2005 estimate to $1.53, from $1.45. S&P's five-year earnings per share growth rate goes to 23%, from 20%, and the 12-month target price goes up to $45, from $38, or about 30 times S&P's calendar 2004 estimate.
Citigroup (C ): Maintains 5 STARS (buy)
Analyst: Evan Momios, CFA
Citigroup announced the planned acquisition of South Korean lender KorAm Bank for about $2.73 billion. Pending regulatory approvals, the transaction is expected to close in the second quarter, and according to Citigroup, should be accretive to 2004 earnings per share. The deal will create the fifth largest financial business in Korea, based on revenues. S&P believes the acquisition will benefit shareholders by expanding Citigroup's presence in one of the largest and most dynamic Asian economies. S&P is keeping the respective 2004 and 2005 earnings per share estimates at $3.87, and $4.41, and is keeping the 12-month target price at $60
Lowe's (LOW ): Maintains 4 STARS (accumulate)
Analyst: Yogeesh Wagle
The home-improvement retailer posted January-quarter earnings per share of 50 cents (excluding a one-time gain) vs. 40 cents, a penny above S&P's estimate. Sales rose 20% on 7.3% same-store sales growth and a 15% gain in retail selling space. S&P is keeping the fiscal 2005 (Jan.) earnings per share estimate at $2.81, before an accounting change, which is slightly higher than Lowe's $2.76 to $2.79 guidance. Although the retailer faces stiff comparisons with fiscal 2004's strong results, S&P sees metropolitan market penetration, a focus on high-end merchandise, and a healthy, do-it-yourself environment to keep earnings per share momentum going. At a p-e-to-growth ratio of 1.1, below the S&P 500, S&P thinks the shares have appeal.
E*Trade Financial (ET ): Maintains 4 STARS (accumulate)
Analyst: Robert Hansen, CFA
At its 2004 analysts day, E*Trade stressed its strong 2003 results, improved corporate governance, and synergies within its diversified business, focusing on retail brokerage and banking. E*Trade has increased its consumer finance assets to 30% of bank assets, boosting net spreads. S&P expects E*Trade to focus on profitable internal growth, but sees further industry consolidation. S&P is leaving the 2004 earnings per share estimate at 80 cents, and keeping the target price at $18, about 23 times S&P's 2004 earnings per share estimate. Despite sharply lower mortgage originations, S&P would accumulate E*Trade, based on expectations of higher trading volumes.
Qualcomm (QCOM ): Maintains 5 STARS (buy)
Analyst: Kenneth Leon, CPA
Wireless phone maker Qualcomm raised the March-quarter earnings per share guidance to 47 cents to 49 cents, from 34 cents to 37 cents, before losses from its investment segment of 1 cent and 4 cents, respectively. S&P continues to expect Qualcomm shares to outperform the S&P 500 in 2004, and believes stronger global demand for handsets and a better market for wireless systems should benefit Qualcomm's chipset and royalty fees. S&P is raising the earnings per share estimates to $1.75, from $1.52 for fiscal 2004 (Sep.). S&P also is upping the the 2005 estimate to $2.10, from $1.76, and boosting the 12-month target price by $5, to $80. Priced near peers based on 2005 earnings estimates, S&P would buy Qualcomm.
Hewlett-Packard (HPQ ): Maintains 3 STARS (hold)
Analyst: Megan Graham Hackett
The technology giant announced it signed an agreement to acquire Triaton GmbH, a unit of ThyssenKrupp Group, as it continues to grow its services capabilities. Triaton is one of Germany's largest independent information-technology services providers, with 2,200 employees and $468 million in annual sales. While the terms of the deal, which is subject to regulatory clearance, weren't released, S&P thinks the planned acquisition makes strategic sense in that it potentially gives H-P services a foothold in one of Europe's largest regions. With H-P trading at a price-to-sales of 1, below the peer average, S&P views H-P as worth holding.
Concord EFS (CE ): Reiterates 4 STARS (accumulate)
Analyst: Richard Stice, CFA
Concord, a provider of electronic transaction services, posted fourth-quarter earnings per share of 21 cents, vs. 18 cents, both before acquisition charges, in line with S&P's estimate and 1 cent above the Street. Results benefited from expense controls and a lower effective tax rate. Fourth-quarter revenue increased 9% to $592 million, but was below S&P's $636 million forecast. Gross margin widened on higher volumes and lower interchange fees. S&P expects the proposed acquisition by First Data Corp. to be completed in the first quarter, pending approvals. S&P's recommendation reflects the view that Concord should closely track performance of First Data, given the high likelihood S&P sees of the deal being consummated.