S&P Raises Invitrogen to Buy

Invitrogen (IVGN ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Mark Basham

The life sciences research company this week outlined an R&D-focused strategy to consistently generate long-term profit growth that builds on assets acquired in recent years. S&P thinks Invitrogen has product platforms in place to drive 10% growth, with more selective acquisitions adding to that. Stock buybacks using a highly liquid balance sheet could provide upside. S&P is adjusting the 2002 estimate to $1.81 from $1.87 on acquisition-related costs, and is adjusting 2003's to $2.05 from $1.98 on better cost management. S&P sees a discounted cash flow-based intrinsic value of $41 to $43.

Costco Wholesale (COST ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Jason Asaeda

The operator of membership-only chain stores posted November quarter earnings per share of 31 cents vs. 28 cents, in line. Net sales advanced 9% on a 4% comparison-store sales increase, or stores open for at least a year. Membership fees rose 11%. With only a low single digit comparison-store sales gain seen in fiscal 2003 (Aug.), due to relatively weak consumer spending, S&P is lowering the fiscal 2003 earnings per share estimate by five cents, to $1.60, and is cutting fiscal 2004's by four cents, to $1.78. S&P says Costco is well positioned to benefit from an economic recovery, but shares are trading at 18 times S&P's $1.63 calendar 2003 earnings per share estimate, slightly above the S&P 500 Index -- making the stock a likely market performer in the near term.

Bristol-Myers Squibb (BMY ): Downgrading to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Herman Saftlas

A story in Thursday's Wall Street Journal claimed that drug maker Bristol-Myers used many questionable accounting practices besides inventory channel stuffing in order to prop up earnings per share in recent years. Bristol-Myers is restating earnings per share for the past six quarters. The restated numbers (expected in February) are likely to be less than expectations. The recently launched Abilify anti-psychotic drug should be a blockbuster, but it will not offset the loss of close to $3 billion in sales from patent expirations. A management shakeup is possible.

Yum Brands (YUM ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Dennis Milton

The operator of Kentucky Fried Chicken, Pizza Hut and Taco Bell chains recently reaffirmed its 2002 earnings per share guidance of $1.89 to $1.91, and said it expected to increase its earnings per share by 10% in 2003. Because of a difficult competitive environment, marked by significant price discounting by rivals, Yum shares have fallen 25% from their September high, and now trade at only 11 times S&P's 2003 earnings per share estimate of $2.08, despite the company's significant international growth opportunities. According to S&P's cash-flow model, shares are now trading at a 35% discount to their intrinsic value.

Halliburton (HAL ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Tina Vital

Shares are up 3% as Halliburton says it is close to an agreement in principle with plantiffs' attorneys representing more than 300,000 asbestos-related claims. The tentative deal spares the oil production and exploration company from bankruptcy, and calls for the creation of a trust to make payments valued at more than $4 billion ($2.8 billion in cash and up to 60 million shares of Halliburton common stock). While the approval is still pending and will almost certainly draw court challenges if successful, S&P thinks the uncertainty regarding Halliburton's asbestos liability is reduced.

Amgen (AMGN ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Amgen provided 2003 guidance of $1.70 to $1.80 proforma earnings per share and $6.7 billion to $7.2 billion in product sales. The biotech company expects its new manufacturing facility for Enbrel, its treatment for rheumatoid arthritis, to be up and running by the first quarter. S&P projects product sales of $6.9 billion in 2003, and $8.4 billion in 2004. S&P still sees $1.38 proforma earnings per share in 2002, but is raising 2003's estimate to $1.77 from $1.64, and upping 2004's estimate to $2.10 from $2.04. On updated discounted cash flows, S&P feels Amgen shares are worth more than $60. Assuming Amgen's forward price-earnings-to-growth multiple is maintained at 1.4, shares could gain at least 20% next year, with less risk than the overall sector.

Procter & Gamble (PG ): Maintains 5 STARS (buy)

Analyst: Howard Choe

Citing higher operating margin, strength in the healthcare division and developing markets, the consumer products giant sees December quarter earnings per share higher than planned. This marks the fifth consecutive quarter that P&G has raised guidance -- underscoring the solid momentum and effectiveness of the turnaround. S&P is raising its December quarter earnings per share estimate to $1.12 from $1.10 and is raising the fiscal 2003 (June) estimate to $4.01 from $3.97. In light of strong trends, shares should trade at a premium that is higher than the current 16% to peers and closer to the intrinsic value of around $100.

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