Hewlett-Packard (HPQ ): Reiterates 4 STARS (accumulate)

Analyst: Megan Graham-Hackett

HP today announced an additional $2 billion stock buyback program. We believe the buyback authorization was largely anticipated by investors, since the company previously acknowledged that an additional program was under consideration because of its improving cash flow generation. We are making no change to our fiscal 2004 (Oct.) earnings per share estimate of $1.43 and our fiscal 2004 (Oct.) S&P Core earnings per share estimate of $1.16, which reflects our forecast of stock option and pension expenses. With its shares trading at a price-to-sales ratio of 1, below the peer average, we view HP as worth accumulating.

Brown-Forman (BF.B ): Maintains 5 STARS (buy)

Analyst: Anishka Clarke

Brown-Forman posted fourth-quarter operating earnings per share of 47 cents, vs. 45 cents, 1 cent below our estimate. Strengthening beverage demand, volume growth, and higher pricing were partly offset by costs of brand-building efforts and inventory cuts, and by lower consumer durables segment profits. We see sales momentum driven by Jack Daniels, Southern Comfort, and new products, but think aggressive advertising will extend into fiscal 2005 (Apr.), limiting our earlier margin growth assumptions. We now see fiscal 2005 earnings per share of $2.44, vs. $2.58. At 16 times our $2.98 calendar 2005 estimate, below historical levels and our $58 target price, we would buy.

Triad Hospitals (TRI ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Robert Gold

Triad said yesterday that it was selling a 122-bed hospital in California. The terms are undisclosed. In our opinion, the decision is strategically positive, given a recent legal decision that supports a high nurse-to-patient ratio at California hospitals. With only one facility in California, we think Triad could have been hurt by the ruling, given its inability to spread higher nursing costs across a large facility base. We are keeping our 2004 earnings per share estimate at $2.39, but believe upside to our 12-month target price of $41 justifies a less bullish investment recommendation.

Motorola (MOT ): Reiterates 5 STARS (buy)

Analyst: Kenneth Leon, CPA

Motorola says it's China's top handset supplier, though with a 15% to 20% share in the March-quarter, vs. 40% in 1999, per a Reuters report. Local Chinese handset suppliers have moved to a 39% share from 5% in the same period. In recent investor meetings, Motorola has said it is now focusing only on mid- to high-end handsets in China, and it plans to launch push-to-talk phones there at the end of 2004. Our target price for Motorola is $25 using a sum-of-the-parts analysis, and we see the expected semiconductor IPO in the June-quarter and the spin-off by year end as positive. Priced below peers at 1.4 times our 2004 sales estimate, we would buy.

Novellus (NVLS ): Maintains 3 STARS (hold)

Analyst: Colin McArdle

Based on its view of strong and improving business fundamentals, Novellus raised its second-quarter revenue and earnings per share guidance during mid-quarter update call today. The company confirms our view that much of the growth is coming from Asia. We are raising our revenue forecast to $334 million from $315 million, within Novellus' new $325 million to $335 million guidance. With strong operating leverage and widening gross margins, largely a function of volume, Novellus says it expects second-quarter earnings per share of 25 cents to 27 cents. We are raising our second-quarter estimate to 27 cents from 19 cents. Our new fiscal 2004 earnings per share estimate is $1.07, up from 91 cents, but our target price stays $42.

R.J. Reynolds (RJR ): Maintains 3 STARS (hold)

Analyst: Anishka Clarke

Texas Attorney General Greg Abbott seeks to block the potential merger of RJR and Brown & Williamson, claiming the transaction would violate tobacco's master settlement agreement. He also claims that under the agreement, B&W owes the state payments related to undisclosed shipments, and seeks access to its accounting. As a number of obstacles begin to surface, we remain cautious on the prospects of a mid-2004 merger and the limitations the FTC may place on such a deal. At 10 times our $5.45 2005 estimate, above peers, we would hold RJR shares, currently yielding 6.8%.

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