S&P Says Accumulate Lowe's

Lowe's (LOW ): Maintains 4 STARS (accumulate)

Analyst: Yogeesh Wagle

Lowe's shares are under pressure after rival Home Depot lowered its fourth quarter fourth quarter fiscal 2003 (Jan.) earnings and sales guidance. Lowe's reconfirmed its previous guidance of 2% to 4% same-store sales growth, 16% to 17% total sales growth and earnings per share of 33 cents for the fourth quarter. Lowe's has outperformed Home Depot with brighter and more navigable stores, attracting women customers with a broad assortment of home decor items and is poised to make a push into metro areas, where Home Depot has faced little competition. At 17 times S&P's $2.13 fiscal 2004 earnings per share estimate, a deserved premium to peers, shares have appeal.

Black & Decker (BDK ): Maintains 3 STARS (hold)

Analyst: Efraim Levy

Black & Decker is sharply lower Friday following a warning by important customer Home Depot that Home Depot's hardware and power tools sales were less than expected during the fourth quarter. While Black & Decker reaffirmed its fourth quarter sales forecast and expects to meet or exceed the consensus earnings per share estimates of $1.01 and $3.19 for the quarter and year, respectively, the Home Depot news bodes poorly for 2003. Exchange rate swings should be a positive, but S&P is lowering its fourth quarter earnings per share forecast by a penny to $1.04 and is trimming the 2003 estimate by five cents to $3.55. Black & Decker is now in the lower end of its historical price-earnings range.

Wellpoint Health Networks (WLP ): Maintains 4 STARS (accumulate)

Analyst: Phillip Seligman

Wellpoint sees 2003 premium revenues at $18.7 billion vs. $16.2 billion in 2002, on 5%-7% more members. The medical loss ratio is seen at 82.2% vs. 81.7%, on growth in large-group accounts and higher Medicaid program costs. S&P sees a selling, general, and administrative cost ratio of 15.5% vs. 16.6%, and thinks this should fall another 130 basis points over time. The managed-care company sees 2003 earnings per share of $5.10 vs. $4.40, and $1 billion free cash flow, which will be applied to investments and share buybacks, but not debt reduction. The CareFirst buyout is now seen by the start of 2004. Wellpoint is compelling at 14 times S&P's 2003 earnings per share estimate of $5.10 vs. 15%-plus long-term growth.

Forest Labs (FRX ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Herman Saftlas

Forest Labs now sees earnings per share for the third quarter of fiscal 2003 (March) at least 15% above the consensus of 77 cents, driven by surging sales of Celexa/Lexapro antidepressants. Forest Labs now ranks as the No. 2 player in the antidepressant market, with more than 20% of new perscriptions. S&P is raising its earnings per share estimates to $3.20 for fiscal 2003, and to $3.80 for fiscal 2004. Also, S&P notes the company recently resubmitted a new drug application for a memantine for Alzheimer's.

Forest Labs has more than $1 billion in cash, and no long-term debt. The premium multiple is justified by superior earnings per share growth. Also, shares are being split 2 for 1.

Home Depot (HD ): Maintains 3 STARS (hold)

Analyst: Yogeesh Wagle

Home Depot lowered its fiscal 2003 (January) earnings per share estimate to between $1.53 and $1.55, from $1.57, on a same-store sales decline of about 10% in the fourth quarter, vs. a 3% to 5% decline expected earlier. The home-improvement retailer cited lower customer transactions and lower than expected performance in traditional gift categories like hardware and power tools in December.

Despite gains by rival Lowe's, S&P expects Home Depot to resist markdowns and grow through its Expo concept stores and recently acquired flooring businesses. Based on S&P's fiscal 2004 $1.80 earnings per share estimate, S&P would hold shares, at a price-earnings-to-growth ratio of one vs. the S&P 500's 1.2.

Synopsys (SNPS ): Maintains 4 STARS (accumulate)

Analyst: Richard Tortoriello

Shares of the chip-equipment maker are lower as the chief financial officer resigned to join Intuit, and as Cadence Design warned of lower than expected earnings per share. S&P thinks the loss of the CFO is a only short-term negative for Synopsys. S&P is putting estimates under review, as Cadence's warning shows chipmakers are demanding extended payment terms and reducing their contract sizes. However, S&P also thinks increases in subscription bookings, brought about by payment terms, will increase Synopsys' backlog and long-term growth. With shares at historic lows on a price-to-book basis, S&P says the stock is attractive.

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