Upgrading Hartford Financial
Hartford Financial Services (HIG ): Upgraded to 5 STARS (strong buy) from 4 STARS (accumulate)
Analyst: Catherine Seifert
The company posted a $5.33 first-quarter operating loss per share, vs. $1.17 operating earnings per share, reflecting a $1.7 billion asbestos charge. But underlying operating EPS rose 14% to $1.33 on 15% higher property-casualty earnings, a 12% rise in investment income, and improved claim trends. We see a $1.75 operating loss in 2003 and $5.25 operating EPS in 2004. Both include dilution from the second-quarter $1.6 billion capital-raising initiative. Prospects are tempered by concerns that Hartford may need to raise added capital. But at 9 times our 2004 estimate, and with the asbestos issue resolved, Hartford is undervalued vs. its peers. Our 6 to 12 month price target is $55.
Tiffany & Co. (TIF ): Reiterates 3 STARS (hold)
Analyst: Jason Asaeda
Tiffany shares are up sharply as the company posted April-quarter earnings per share of 24 cents vs. 22 cents, in line with our estimate but one penny above the Wall Street mean. Sales rose 14%, with comparable-store sales in the U.S. and Japan, Tiffany's largest markets, up 2.0% and down 3%, respectively. Operating margin narrowed, with the inclusion of Little Switzerland business, which has lower gross margins, and reduced cost leverage. Tiffany has not changed its fiscal 2004 (ending January) EPS outlook. We estimate $1.35 fiscal 2004 operating EPS (up 10%). We see expected EPS improvement --and the company's strong core brand -- adequately represented in the stock's premium p-e ratio.
Millennium Pharmaceuticals (MLNM ): Reiterates 4 STARS (accumulate)
Analyst: Frank DiLorenzo
Millennium received FDA approval of Velcade as a third-line treatment for multiple myeloma. We feel there could also be off-label use in earlier stages of treatment. Millennium will also test the drug for earlier use, and is conducting trials for treatment in solid tumor cancers. Preliminarily, we envision Velcade could reach $500 million in peak annual sales by the end of decade, assuming use in solid tumor cancers and earlier stage multiple myeloma. On our net present value analysis of Velcade, Integrilin, and pipeline, we feel the stock is moderately undervalued but still very risky.
Applied Materials (AMAT ): Reiterates 4 STARS (accumulate)
Analyst: Richard Tortoriello The maker of semiconductor wafer fabrication equipment posted April-quarter earnings per share of 3 cents before 7 cents of charges vs. EPS of 3 cents, on a 4% sales decline. Results were 1 cent ahead of Wall Street expectations. Orders fell 5% from the January quarter. AMAT sees July quarter sales flat to down from the April quarter, with orders flat. We view report as a sign that though spending remains cautious, the industry has bottomed. We expect a slow recovery in the second half and into 2004, and have trimmed our fiscal 2003 (ending October) estimate by 1 cent, to 14 cents; we still see fiscal 2004 EPS at 56 cents. We view AMAT as attractive at 14 times our fiscal 2005 cycle-peak EPS estimate of $1.10 vs. its prior high-price to cycle-peak p-e multiples of 16-43.
Computer Sciences (CSC ): Reiterates 4 STARS (accumulate)
Analyst: Richard Stice, CFA
Computer Sciences posted Mach-quarter earnings per share of 95 cents before a 2-cent acquisition charge, vs. 82 cents, 1 cent above the Wall Street consensus estimate. Revenues rose slightly as the inclusion of the DynCorp acquisition outweighed continued weakness in the commercial market. Europe was the strongest market geographically. The company also announced $3.8 billion of new contract awards during the March quarter, with an additional $2.8 billion so far in the current quarter. We are reducing our fiscal 2004 (ending March) EPS estimate by 6 cents, to $2.86. But with the shares trading at a discount to the broader market on both a p-e and p-e-to-growth basis, we view the stock as attractive.