S&P Says Buy Analog Devices

Analog Devices (ADI ): Maintains 5 STARS (buy)

Analyst: Thomas Smith

The chip maker posted January quarter earnings per share of 16 cents vs. six cents, in line with consensus. Revenue rose 19% from a year ago and 3% from the October quarter. Operating margin widened to 16.4%, and the book-to-bill ratio is above one. ADI guided for 3% to 5% revenue growth in the April quarter over the January quarter. Its analog and digital signal processor chips are selling better than most categories. New wafer plants should boost gross margin if analog volumes turn stronger over the next 12 months, as S&P expects. Cash is ample at $3 billion. ADI shares trade at 28 times S&P's 90 cents calendar 2003 estimate, above the market but below some peers.

Krispy Kreme : Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Dennis Milton

The doughnut maker's shares are up Friday, as the company projected upside fiscal 2004 (Jan.) earnings per share of 88 cents. Krispy Kreme also announced it would open 77 stores in fiscal 2004, higher than S&P's anticipations. S&P is raising the fiscal 2004 earnings per share estimate by five cents, to 88 cents, to account for the added stores. Despite Friday's share-price gain, the stock is down more than 20% from November highs, and is currently priced at 15% below its intrinsic value according to S&P's cash-flow model. S&P doesn't think the stock will outperform the overall market, but now recommends holding existing positions.

Human Genome Sciences (HGSI ): Reiterates 3 STARS (hold)

Analyst: Frank DiLorenzo

The company's fourth quarter pro forma loss per share of 35 cents, before an 11-cent restructuring charge, was three cents narrower than S&P's estimate. Net cash of $783 million should be adequate to continue development plans into 2007. S&P thinks Human Genome's estimated increase in operating costs of 10% is prudent, and expects the company to focus on its most promising projects. Repifermin (in Phase IIb) to treat chronic venous ulcers could be a marginal product, if eventually approved. On a net cash position and pipeline, Human Genome shares are reasonably priced, though speculative.

Universal Health Services (UHS ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Phillip Seligman

Universal Health posted fourth quarter operating earnings per share of 69 cents vs. 50 cents, as it had guided. EBITDA margin and cash flow rose. The company reiterated its 2003 guidance for revenues of $3.5 billion to $3.6 billion, and earnings per share of $3.10 to $3.20. But news of the CFO's departure, which came at the behest of auditor KPMG amid "philosophical" differences about responsibilities, outweighed the financial gains and prospects. Universal Health still claims its audit was clean. Even so, the issue casts a cloud over the shares that is unlikely to dissipate until the company provides more clarification than it did on its conference call, and until the market sees a number of clean quarters.

Intuit (INTU ): Maintains 4 STARS (accumulate)

Analyst: Scott Kessler

Before acquisition-related items, one-time gains and discontinued operations, Intuit posted January quarter earnings per share of 61 cents vs. 53 cents -- four cents above the Street's estimate. Revenues rose 17% with good growth in five main businesses. TurboTax revenues increased a solid 11%, and Intuit addressed new product activation concerns and showed that a continuing mix shift makes recent and somewhat disappointing sales figures irrelevant. Pro forma operating margin was a strong 33%, although down from 34.6%. Intuit's calendar 2003 price-earnings-to-growth ratio of 1.1 is attractive relative to the S&P 500 Software Industry.

J.M. Smucker (SJM ): Reiterates 5 STARS (buy)

Analyst: Mark Basham

January quarter earnings per share of 56 cents vs. 34 cents handily topped S&P's 50 cents estimate. A strong 13% rise in retail sales of Jif and an 8% rise in Crisco sales reflects a focus on invigorating recently acquired brands, while sales of traditional Smucker spreads were up a respectable 4%. This performance is indicative of consumer sensitivity to increased marketing initiatives of supposedly mature brands. S&P is raising its fiscal 2003 (April) estimate to $2.10 from $2.05 and is upping the fiscal 2004 estimate to $2.32 from $2.20, reflecting a belief that volume growth, line extensions, and a change in product mix can continue to support Smucker's 10% earnings per share growth.

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