Keeping Buy on Sybase
Sybase (SY ): Reiterates 5 STARS (buy)
Analyst: Jonathan Rudy
The company reported fourth-quarter earnings per share of 30 cents vs. 31 cents one year earlier, excluding one-time items, one penny above estimates. Revenues decreased 11%, in line with expectations. License revenues declined 18%. With tight cost controls, operating margin widened to 16%, from 13%. However, we are trimming our 2003 EPS estimate to $1.12, from $1.13. At 12 times our 2003 EPS estimate, and 1.5 times sales, Sybase is trading at a substantial discount to its peer group. With about $4.15 per share in net cash and investments, we believe that Sybase remains attractive, trading at a notable discount to fair value based on discounted cash flow.
Merck (MRK ): Still 3 STARS (hold)
Analyst: Herman Saftlas
Fourth-quarter earnings per share rose 2%, to $0.83, in line with the Wall Street consensus. Pharma sales grew 9%, helped by strength in Cozaar and Singulair, offsetting sharp declines in off-patent drugs and Vioxx and only a 2% gain for the Zocor cholesterol drug. Merck's projection for 10% pharma profit growth in 2003 assumes it will reach the top of projected $2.40-$2.47 range. The overall product pipeline is still sparse for a company the size of Merck. And it faces patent loss on Zocor in 2006 (2002 sales of $5.6 bilion). Merck is adequately valued at big-pharma's average p-e of 20 times estimated 2003 EPS.
DuPont (DD ): Reiterates 3 STARS (hold)
Analyst: Richard O'Reilly
Dupont posted fourth-quarter operating earnings per share of 34 cents vs. 12 cents one year earlier, just above its recent lowered guidance. The rise reflects much higher volumes, greater drug profits, and lower interest expense. Results also included a 5 cent a share benefit from a reduction in the 2002 tax rate to 24% because of a favorable geographic mix of profits. Sales rose 9% as volume climbed 7% on gains in all regions. But the company sees first-quarter EPS similar to the 55 cents reported one year ago, with higher pension and raw material costs and a more normal tax rate. The shares are okay to hold at 17 times our 2003 EPS estimate of $2.25.
Procter & Gamble (PG ): Still 5 STARS (buy)
Analyst: Howard Choe
Excluding charges, P&G posted December quarter earnings per share of $1.13 vs. $1.03 one year earlier, a penny better than our estimate. Revenue and volume growth was solid, at 6% and 8% respectively, led by health care and beauty care. Restructuring benefits and lower material and overhead costs led to gross and operating margin expansion, up 140 and 40 basis points, respectively. Due to stronger volume trends and favorable foreign exchange, we are raising our fiscal 2003 EPS estimate to $4.04 from $4.01. In light of the company's strong execution and outlook, P&G shares are attractive at a 20.5 p-e and at a discount to their intrinsic value.
Pepsi Bottling Group (PBG ): Reiterates 4 STARS (accumulate)
Analyst: Rick Joy
The company reported fourth-quarter earnings per share of 20 cents vs. 5 cents one year earlier, 3 cents better than expected. Full year EPS were $1.46 vs. $1.03. Fourth-quarter comparable worldwide physical case volume was level with the prior-year period, while average pricing gained a strong 3%. EBITDA rose 24% on higher pricing and acquisition contributions. For 2003, Pepsi Bottling expects comparable volume growth of 3%-4%. We are keeping our 2003 EPS estimate at $1.73. The shares remain attractive on solid earnings visibility and consistency, as well as strong growth potential across the company's beverage portfolio. (
Biogen (BGEN ): Still 3 STARS (hold)
Analyst: Frank DiLorenzo
Fourth-quarter Avonex sales of $256 million were $1 million above our forecast. Pro forma fourth-quarter earnings per share of 43 cents met our estimate. Royalty payments of $46 million rose sharply from $27 million in the prior quarter on resumption of payments from Schering-Plough. Biogen sees 2003 royalties of $145-$160 million. We feel Biogen's Amevive could be approved and launched in the first quarter. We see Avonex sales reaching $1.04 billion in 2003, essentially flat amid competition, and initial Amevive sales at $91 million. We estimate EPS of $1.74 for 2003, rising to $2.06 for 2004. Based on discounted cash flows and the net present value of its products and pipeline, we consider Biogen shares reasonably valued.
Sealed Air (SEE ): Keeping 4 STARS (accumulate)
Analyst: Stewart Scharf
Fourth-quarter earnings per share of 68 cents before a $6.81 asbestos settlement charge, vs. 63 cents one year ago, were 2 cents above the Wall Street consensus estimate. Sales rose 8.3% (6% before foreign exchange effects) on strength in food and specialty packaging volume. We expect EBITDA margins to widen, and see further growth as the economy recovers. Sealed Air will likely use free cash for further debt paydowns and share buybacks. At 15 times the $2.43 EPS we see for 2003, modestly below the p-e for the S&P 500, and with its asbestos case resolved, and earnings quality high with no pension or option expense, Sealed Air is attractive.
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