S&P Says Still Hold AMD

Plus analysts' opinions on Alcoa, STMicroelectronics, and more

Advanced Micro Devices (AMD ): Maintains 3 STARS (hold)

Analyst: Amrit Tewary

AMD warns that fourth-quarter sales will be up only slightly from the third quarter, and operating income will be down sharply. We believe price competition in flash memory market has been hurting the company more than we had initially expected. We now see fourth-quarter sales showing only a modest sequential improvement, compared to our earlier 8% growth projection. On lower sales and margin assumptions, we are cutting our fourth-quarter earnings per share estimate to 8 cents from 19 cents, full 2004 earnings per share to 41 cents from 52 cents, and 2005's earnings per share estimate to 46 cents from 66 cents. We are lowering our 12-month target price by $1 to $17, based on price-to-sales analysis.

Alcoa (AA ): Reiterates 4 STARS (buy)

Analyst: Leo Larkin

Alcoa posts fourth-quarter earnings per share from continuing operations of 39 cents, vs. 39 cents on a 10.3% sales gain, shy of our 40 cents estimate. Earnings per share was unchanged as margin contraction in packaging, a loss in the company's miscellaneous other segment, and lower non-operating income offset higher metal prices. Alcoa tells analysts that it expects raw material and currency cost pressures to persist in 2005, but expects to be able to negate the impact through cost cutting. We are keeping our $2.25 2005 earnings per share estimate unchanged, as we believe higher volume and prices for both alumina and aluminum should offset rising costs.

STMicroelectronics (STM ): Reiterates 3 STARS (hold)

Analyst: Habib Nasrallah, CFA, Megan Graham-Hackett

STMicroelectonics now sees December-quarter revenues up 4.3% from its September-quarter, at the upper end of its prior guidance of 0% to 5%, but in line with our forecast. However, the company lowers its gross margin guidance to 36.6% from 38% to 39%, mainly on a weaker U.S. dollar. STMicroelectonics reports Jan. 27, and with lower gross margin guidance, we are reducing our 2004 earnings per share estimate to 63 cents from our original 66 cents. Although we are maintaining our hold recommendation, we are reducing our 12-month target price to $18 from $20 to reflect our view of the impact of the dollar's depreciation.

News Corp. (NWS ): Reiterates 5 STARS (strong buy)

Analyst: Tuna Amobi, CPA, CFA

While News Corp. expects its tender offer for the public's 18% stake in Fox Entertainment to be accretive in fiscal 2005 (ending June), our earnings per share estimate stays at 75 cents, slightly above the Street mean. After News Corp.'s recent domicile change and S&P index addition, we think this stock swap and short form merger should help streamline structure and boost liquidity. With likely SEC greenlight on Form S-4, and approval from Fox's independent directors likely not critical, the tender could be consummated by early March. But, after a run-up in Fox shares, a reasonably higher bid would not seem unlikely.

Fox Entertainment Group (FOX ): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

After yesterday's significant run-up in Fox shares in the wake of the tender offer from parent News Corp., we think the shares are now trading at the higher end of our fair value estimates. With this post-announcement run-up, however, we expect, and would not be surprised by, a reasonably higher bid from News Corp. The deal could be consummated by Mar. 2004, subject to SEC approval of Form S-4. After the deal, we continue to like News Corp. as a better play for Fox's diversified media and entertainment assets. Our 12-month target price for Fox is $35.

Genentech (DNA ): Reiterates 5 STARS (strong buy)

Analyst: Frank DiLorenzo, CFA

Fourth-quarter profroma earnings per share of 21 cents was in line with our expectations. Product sales are slightly disappointing to us, with $200 million for Avastin $6 million below our projection, $448 million for Rituxan $4 million below, and $126 million for Herceptin $3 million below. Tarceva sales of $13 million were $9 million above. We are lowering our 2005 earnings per share estimate to $1.07 from $1.15 on higher cost guidance than expected. However, we see long-term upside on Tarceva with AstraZeneca's Iressa now out of the picture, and think Lucentis results due in second-quarter could provide catalyst if they are positive. On our net-present-value analysis, our target price remains $63.

QLogic Corp. (QLGC ): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Richard Stice, CFA

QLogic sees December-quarter revenue at $148 to $150 million and earnings per share of 46 cents to 48 cents. Previous revenue and earnings per share guidance was $136 to $148 million and 38 cents to 41 cents, respectively. The company cites strong demand for all major product categories, as well as less price erosion than we expected. We view this news positively and believe QLogic continues to strengthen its industry-leading market share position. We are raising our fiscal 2005 (ending March) earnings per share estimate by 5 cents to $1.65, our fiscal 2006 by 8 cents to $1.78, and our 12-month target price by $5 to $40 on updated discounted-cash-flow growth rates. We advise purchase. Williams-Sonoma (WSM ): Maintains 3 STARS (hold)

Analyst: Michael Souers

Williams-Sonoma posted flat same-store sales for the eight-week holiday period ended Dec. 26 and reiterates earnings per share guidance of $1.58 to $1.61 for fiscal 2005 (ending January). Revenues came in lower than expectations, however, due to weakness in Pottery Barn sales as well as a greater shift than expected to retail sales the week after Christmas, reflecting an increase in pre-holiday gift card sales. We are trimming our fiscal 2005 and fiscal 2006 earnings per share estimates to $1.60 and $1.88 from $1.61 and $1.92, and lowering our 12-month target price to $38 from $40, or to 20 times our fiscal 2006 estimate, a slight premium to peers.

Adolor Corp. (ADLR ): Maintains 3 STARS (hold)

Analyst: Jeffrey Loo, CFA

The FDA has requested that Adolor provide data from the European Phase III trial for Entereg to treat postoperative ileus. This trial failed to meet its primary endpoints. We believe the results from the trial, along with the mixed results from the 3 Phase III trials in the U.S., raise doubts about FDA approval of the NDA. We see the FDA requesting another trial, effectively delaying potential commercialization until 2008. We still expect positive data from Phase II trials for Entereg to treat opioid bowel dysfunction and chronic constipation. Our 12-month target price stays $11.

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