S&P Ups Viacom to Buy

Viacom (VIA ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Tuna Amobi

Viacom posted first quarter earnings per share of 26 cents vs. 21 cents -- two cents above S&P's estimate. Free cash jumped 56%, paced by 6% advertising gains -- above peers -- and lower interest, taxes, and working capital needs. Viacom is well-situated to benefit from an ad rebound. Separately, the deal to acquire AOL Time Warner's 50% stake in Comedy Central for $1.2 billion would grant Viacom full control of a prized network, enhancing a viable portfolio. The bid for Vivendi's U.S. cable networks is probable. S&P is raising its 2003 earnings per share estimate by 4 cents, to $1.48. With 15% to 17% long-term earnings per share growth, value is compelling on a price-earnings-to-growth basis, with shares trading at 1.6 times S&P 2003 earnings per share estimate -- 15% above the S&P 500.

Pfizer (PFE ): Reiterates 5 STARS (buy)

Analyst: Herman Saftlas

The drug maker's first quarter earnings per share rose 15% to 45 cents -- a penny above the Street's consensus. Sales advanced 10% (one third from the positive impact of foreign exchange), and were driven by gains in cholesterol drug Lipitor (+13%), respiratory tract infection treatment Zithromax (+35%), and impotentcy drug Viagra (+13%). Margins widened on tight control over selling, general, and administrative costs and R&D. New drug filings were recently made for a Lipitor/Norvasc combo, pregabalin for pain, and Inspra for heart failure. Pfizer plans to issue 2003 guidance for combined Pfizer/Pharmacia in June. S&P still views Pfizer as undervalued relative to its sustainable growth rate, peer valuations, and intrinsic worth, based on S&P's discounted cash flow model.

Coach (COH ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Jason Asaeda

Shares are up Tuesday as handbag retailer Coach posted March quarter earnings per share of 34 cents vs. 16 cents -- 4 cents above S&P's estimate. Results benefited from a 14.1% comparison-store sales gain, increased sales of higher-margin mixed-material items, and better expense leverage. Given the strong sales momentum, S&P is raising its fiscal 2003 (June) earnings per share estimate by 7 cents, to $1.55, and is upping fiscal 2004's by 6 cents, to $1.81 -- a penny above company guidance. But at 25 times S&P's calendar 2003 $1.69 earnings per share estimate, in line with peers on a p-e-g basis and on par with the five-year average p-e, S&P sees Coach's favorable outlook already adequately reflected in the share price.

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

Analyst: Robert Gold

Boston Scientific posted first quarter earnings per share of 28 cents vs. 22 cents, in line with S&P's estimate. The 14% sales growth, before an $38 million currency benefit, was above S&P's projection, with double-digit gains across all segments. TAXUS IV is on track for a June filing and fourth-quarter launch, with three of six modules filed to date. S&P is trimming the second quarter earnings per share estimate by a penny to 31 cents, based on a higher R&D forecast, and reflecting a somewhat slower-than-expected drug-coated stent rollout in Europe. S&P still sees 2003 earnings per share at $1.30, and sees 2004 at $2.50, with estimated S&P Core earnings per share rising 31% to $1.17 in 2003.

Dun & Bradstreet (DNB ): Upgrades to 4 STARS (accumulate) from 2 STARS (avoid)

Analyst: William Donald

Dun & Bradstreet posted first quarter earnings per share of 48 cents vs. 43 cents. Results were in line with the company's lowered guidance, reflecting soft business demand, particularly in the sales and marketing solutions unit. Despite softness in the business environment, S&P sees continued profit and cash-flow gains, aided by efficiencies, including the migration to an internet delivery platform, which now accounts for 68% of revenues. S&P sees $2.25 2003 earnings per share, up 20% from 2002's $1.87, and another 20% advance to $2.70 in 2004. The shares are trading at 16 times S&P's 2003 estimate and 13 times the 2004 estimate, trailing the expected growth rate and lag peer average.

Capital One Financial (COF ): Maintains 4 STARS (accumulate)

Analyst: Robert McMillan

Capital One posted first quarter earnings per share of $1.35 vs. 83 cents, well above expectations. Results reflected 10% higher total revenues, significantly lower marketing expenses, and improving credit quality. Although the managed portfolio charge-off rate rose, delinquencies dropped to 4.97%, from 5.60%, and allowed the company to reduce its loan loss allowances. S&P thinks credit trends will improve further and is reviewing its estimates. S&P thinks the shares, trading at 8.3 times the Street's 2003 $4.49 earnings per share estimate and well below Capital One's 20% three-year to five-year growth rate, will outperform the market.

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