S&P Downgrades Coke to Hold

Also: Analysts' opinions on Office Depot and Canon

Coca-Cola (KO ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Richard Joy

Coke announced that third- and fourth-quarter results will be below expectations, citing unfavorable operating conditions in several key markets. We believe challenges facing its global businesses will take longer than originally expected to fix. We are reducing our 2004 EPS estimate by 12 cents to $2.00 and our 2005 estimate by 15 cents to $2.20. We are also reducing our 12-month target price by $11 to $44. While we see Coke applying its significant free cash flow towards share buybacks, we believe upside to the current share price will be limited until evidence emerges of sustained volume and earnings growth.

Oracle (ORCL ): Reiterates 4 STARS (accumulate)

Analyst: Jonathan Rudy, CFA

The company's August-quarter earnings per share of 10 cents, vs. 8 cents one year earlier, was one cent better than our estimate. Revenue growth of 7% also beat our forecast. Database technology was strong, in our view, with 18% license revenue growth, but Oracle's application business was disappointing with a 36% decline in license revenue. Its operating margin widened to 32% from 30%, year-over-year. We are raising our fiscal 2005 (May) EPS estimate to 58 cents, from 56 cents. With high levels of profitability, and a strong balance sheet, in our view, we believe that Oracle shares remain attractive trading at a discount to peers on both p-e and p-e-to-growth metrics.

Office Depot (ODP ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analysts: Yogeesh Wagle, Jason Asaeda

We are disappointed by Office Depot's third-quarter EPS guidance of 26 cents to 28 cents, as we had projected 36 cents. The company attributes this negative preannouncement to unexpected costs and lost sales from recent storms, weak back-to-school sales, lack of improvement in contract sales, and failure of its European Guilbert business to generate the revenue lift expected when it was acquired last year. We are cutting our 2004 EPS estimate by 15 cents to $1.10, and our 2005 forecast by 25 cents to $1.25. We are also lowering our 12-month target price by $5 to $16, or 13 times our 2005 EPS estimate, below historical levels.

Canon (CAJ ): Reiterates 5 STARS (buy)

Analyst: John Yang

We think Canon's 50%-owned joint venture with Toshiba for SED (surface-conduction electron-emitter display) screens, the new generation of flat-panel displays, may present positive upside earnings potential for the company. Based on our research, the SED's visual clarity is comparable to that of cathode-ray-tube (CRT) and better than current LCDs and plasma screens. Once SED is commercialized, we believe Canon and Toshiba should have a firm competitive edge over other flat-panel display makers, considering the technological superiority we see. We are keeping our target price of $74 on Canon's American Depositary Receipts, based on historical p-e and discounted cash-flow measures.

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