Buy Boston Scientific

Boston Scientific (BSX ): Maintains 5 STARS (buy)

Analyst: Robert Gold

An FDA advisory panel unanimously recommended the agency approve Enteryx for the treatment of gastroesophageal reflex disease (GERD). This patented liquid polymer, injected into valve between the esophagus and the stomach, prevents the upward movement of acid, which can damage the esophagus. The product is an alternative to proton pump inhibitors and other heartburn-related medications whose annual U.S. sales approximate $9 billion. Following full FDA approval, S&P sees annual revenue contribution to Boston Scientific of about $400 million.

Beckman Coulter (BEC ): Upgrades to 3 STARS (hold) from 1 STAR (sell)

Analyst: Robert Gold

The maker of laboratory products says it will meet the upper end of 2002 fourth quarter revenue and earnings per share guidance. Beckman Coulter sees sales up 3%, likely driven by strength in clinical diagnostics, and earnings per share before charges of 90 cents. S&P was looking for revenue growth of 0%-1%, with earnings per share of 75 cents. Management appears to have done a solid job in reducing operating costs to meet revenue challenges. S&P is boosting the 2002 earnings per share forecast by 14 cents to $2.45, and sees 2003 at $2.55. The stock's valuation of only 12.5 times S&P's 2003 estimate looks reasonable, given the chance for operating margin stability ahead of a rebound in the life sciences area.

JLG Industries (JLG ): Downgrades to 3 STARS (hold) from 5 STARS (buy)

Analyst: James Sanders

S&P reevaluated its outlook for the commercial construction industry, a primary growth driver for JLG, and doesn't think a recovery is likely in the near term due to significant overcapacity. However, management's focus on cost control and balance sheet maintenance should position the company well for an eventual cyclical upturn. Although S&P's intrinsic valuation models indicate that JLG is trading at a 25%-30% discount to fair value, this price range will likely not be realized until its end markets begin to strengthen.

Citigroup (C ): Maintains 5 STARS (buy)

Analyst: Stephen Biggar

The company posted fourth quarter earnings per share of 47 cents vs. 69 cents, in line with estimates. The lower earnings per share reflect $1.3 billion of reserves related to Enron and settlements with regulators over research. The global consumer segment remains a bright spot with strength in credit cards and retail banking. Global corporate and investment bank income is flat in a weak environment. S&P says the results are impressive considering the roadblocks throughout 2002, and demonstrates the company's diversified earnings stream. With regulatory clouds lifting, the continued strong core earnings per share momentum, and a historical valuation discount, S&P recommends investors buy Citigroup.

Johnson & Johnson (JNJ ): Reiterates 4 STARS (accumulate)

Analyst: Herman Saftlas

The drug maker's fourth quarter earnings per share rose 23% to 48 cents -- a penny per share above consensus. Drug sales grew 16%, but rose only 10% adjusted for inventory. Full-year operating earnings per share rose 17%. J&J sees another 17% earnings per share gain in 2003, boosted by the planned launch of a new Cypher drug-coated stent in March or April. But greater competition to its key drugs Procrit and Remicade, plus generic erosion in oral contraceptives, will slow drug growth. J&J ended the year with net cash of $3.3 billion after a $5 billion share buyback and $1 billion in additional pension funding. The R&D pipeline includes over 60 new molecular entities. J&J is valued at modest.

Duane Reade (DRD ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Joseph Agnese

The New York City-based drug-store chain anticipates fourth quarter earnings per share of 33 cents to 36 cents, before a five-cent extraordinary gain, vs. S&P's 49 cents estimate. Same-store sales rose 3.8%, below the expected 5%-7% range, on 8% pharmacy sales growth and an 0.8% increase in front-end sales. Margins were limited by lower front-end holiday sales than expected, despite a shift in the product mix to generic drugs. S&P is lowering the 2003 earnings per share estimate to $1.40 from $1.50 on expectations of continued weakness in consumer demand. However, shares are trading at 11 times that estimate, well below peers. S&P says Duane Reade is O.K. to hold.

BB&T Corp. (BBT ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Stephen Biggar

The bank agreed to acquire the $11 billion-asset First Virginia Banks in a stock swap valued at $3.3 billion. S&P likes BB&T's further entry into the attractive Virginia markets, but thinks the deal is a bit pricey at 17.5 times the 2003 earnings per share estimate and 2.7 times the book value, considering BB&T's valuation. In addition, BB&T's plan to save 40% of First Virginia's expense base is aggressive, even with an overlapping branch structure, which raises an integration risk. Both are well-run banks, but S&P thinks investors' attention is likely to focus on transaction risks rather than fundamentals.

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