Sepracor (SEPR ): Upgrading to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Herman Saftlas
Sepracor gets FDA approvable letter for its new Estorra insomnia treatment. In our view, the labeling is likely to include several important advantages over market-leader Ambien. We anticipate an Estorra launch by mid-year, with sales of about $50 million this year. Factoring in heavy marketing costs, we are raising our 2004 loss estimate by 20 cents, to $2.15. But, helped by Estorra, which we think should get 25% of a $2 billion market, we see Sepracor doubling its sales base by 2007, with $2-plus EPS. Our target price goes up by $17 to $47, based on our revised forward p-e, enterprise value and DCF analyses.
Universal Health (UHS ): Downgrading to 2 STARS (avoid) from 3 STARS (hold) Analyst: Frank Connelly
We believe that Universal Health's pre-announced earnings shortfall will primarily result from company-specific issues related to competition in select markets, and some critical staffing mistakes. While rising self-pay revenue is a part of the problem, we do not think Universal Health's bad debt guidance has been as conservative as its peers. We are lowering our 2004 EPS estimate to $2.90 from $3.48, based on our outlook for a gradual recovery to modest earnings growth by the fourth quarter. We expect the shares to trade down to our new 12-month target price of $41, cut today from $57, or 14 times our revised 2004 EPS estimate.
Sprint (FON Group) (FON ): Keep 2 STARS (avoid)
Analyst: Todd Rosenbluth
This is an update from earlier comments: Following Sprint's planned recombination of its trading stocks FON and Sprint PCS (PCS ), we have made pro forma projections for the company's operations and shares. In 2004, we see EBITDA of $8.1 billion and EPS of 71 cents. Our new 12-month target price of $16, up from $13, includes PCS. Given our view of the high dependence of wholesale operations on wireless, long overdue cross-selling efforts, and challenges from wireline competition, we think Sprint shares are unappealing at a p-e of 25, well above peers with what we regard as stronger operating environments.
Sprint PCS (PCS ): Keep 3 STARS (hold)
Analyst: Kenneth Leon, CPA
We are surprised that Sprint's (FON ) board of directors did not give PCS shareholders a premium to its current share price in recombining the firm's two tracking stocks. PCS does trade at discount to AT&T Wireless (AWE ), which will likely be acquired by Cingular Wireless in late 2004 or early 2005. We think the timing gap allows quality competitors such as Nextel (NXTL ) and Verizon Wireless to gain market share. We recommend solid operators such as Nextel, which trades below the market on 2004 earnings estimates, and would avoid stocks driven by takeover rumors.
Black & Decker (BDK ): Keep 5 STARS (buy)
Analyst: Amrit Tewary
We see Black & Decker gaining or maintaining share in key markets via new products and potentially accretive acquisitions. Also, we see margins widening on restructuring benefits and productivity initiatives. At 12 times our $4.40 2004 EPS estimate, the shares are at a discount to the S&P 500, close peers, and the stock's historical average p-e. We are raising our 12-month target price to $66, from $61, based on our historical p-e model and assuming a target multiple of 15 times our 2004 EPS estimate. Over the past three years, the shares have traded in a p-e range of between 8 times and 21 times operating EPS.
MedImmune (MEDI ): Downgrading to 3 STARS (hold) from 4 STARS (accumulate)
Analyst: F.DiLorenzo, CFA
MedImmune guides for 2004 EPS of 50 cents to 60 cents , well below the 98 cents we had estimated. It sees 2007 EPS of $1.00 to $1.10. MedImmune will still invest in FluMist, but does not see meaningful sales contribution before 2007. We question the decision, since we see new competition in the flu arena by 2007. We are lowering our 2004 sales forecast for Synagis to $967 million from $1.02 billion, and continue to think the Synagis franchise is valuable. We are also lowering our 2004 EPS estimate to 61 cents, from 98 cents, and 2005's to 77 cents, from $1.19. On a discounted cash flow basis, our 12-month target price is $26, reduced today from $30.