Lennar (LEN ): Maintains 3 STARS (hold)
Analyst: Michael Jaffe
Lennar posted August-quarter earnings per share of $1.36, vs. $1.21, 2 cents above our forecast, on 16% more closings, 4% higher average prices, and higher land sales, which outweighed weaker financial profits. Orders rose 1%, but backlog grew 35% (17% in units) to $6.1 billion. We raised our fiscal 2004 (Nov.) earnings per share estimate by 20 cents to $5.70, and fiscal 2005's by 25 cents to $6.40. Our view of higher mortgage rates lessens our outlook on builders, but we would hold Lennar based on its footprint in what we see as good demographic markets, and its complementary marketing. Our 12-month target price remains $49.
Medarex (MEDX ): Maintains 4 STARS (accumulate)
Analyst: Jeffrey Loo, CFA
Medarex entered into a global collaboration agreement with Pfizer and plans to develop up to 50 antibody products over the next 10 years. Pfizer will pay Medarex $80 million and buy $30 million of Medarex stock. The deal includes potential milestone payments to Medarex of over $400 million, and potential royalties upon commercialization. Medarex and Pfizer also exchanged nonexclusive licenses relating to antibodies to CTLA-4, where Medarex is further along in clinical development. We view this agreement very positively and raise our 12-month target price to $10 from $8, on our forecast for greater cash flow.
Hewlett-Packard (HPQ ): Maintains 3 STARS (hold)
Analyst: Megan Graham-Hackett
HP announced that it has repurchased $1.3 billion of its outstanding stock in an accelerated buyback agreement. Together with additional repurchases in the October quarter, the company expects to buy back a total of $2.1 billion in stock for the quarter, or 4.0% of the total shares outstanding. HP's board also approved an additional $3 billion in share repurchases. We believe the company's has a strong balance sheet supporting this program, and we note that HP had communicated its intent to buy back shares. With shares trading at a price-sales ratio of less than one, below the peer average, we view HP as worth holding.
Colgate-Palmolive (CL ): Maintains 3 STARS (hold)
Analyst: Howard Choe
Today Colgate provided third-quarter earnings per share guidance of 57 cents to 59 cents, which is well below our expectation of 66 cents and the Street's estimate of 67 cents. The company attributes this likely earnings per share decline to higher marketing spending implemented to drive volume and higher raw material costs. Colgate also expects fourth-quarter earnings per share of 57 cents to 59 cents, compared to our 71 cents estimate and the Street's 68 cents projection.