Still Accumulate Lowe's Cos.
Lowe's Cos. (LOW ): Reiterates 4 STARS (accumulate)
Analyst: Yogeesh Wagle
Lowe's posted April-quarter earnings per share of 53 cents vs. 44 cents one year earlier. Sales rose 11%, largely driven by a 13% gain in retail selling space. Same-store sales were only slightly higher amid adverse weather and geopolitical uncertainty. We see strong home sales and mortgage refinancing activity continuing to support home improvement spending. We believe Lowe's same-store sales should rebound to 4%-5% growth for the rest of fiscal 2004 (ending January). Trading at a p-e to growth ratio of 0.9 on our $2.20 fiscal 2004 EPS estimate, with a 20% 5-year EPS growth outlook, below its key peer, we believe Lowe's has appeal despite recent sales softness.
Campbell's Soup (CPB ): Upgrades to 3 STARS (hold) from 1 STAR (sell)
Analyst: Richard Joy
Campbell posted April-quarter earnings per share of 31 cents vs. 26 cents, 4 cents above the analysts' consensus estimate. Sales gained 17% as volume/mix rose 6%, pricing gained 2%, promotions decreased 2%, currency added 4%, and acquisitions contributed 3%. U.S. wet soup shipments increased a strong 10% on new products and favorable weather. We are raising our fiscal 2003 (July) EPS estimate by 3 cents to $1.50, and our fiscal 2004 EPS estimate by 5 cents to $1.60. Given the improving outlook for Campbell's soup businesses, we view the shares as a worthwhile holding at 15 times our calendar 2003 EPS estimate of $1.52, in line with the p-e for the company's packaged food peers.
DSP Group (DSPG ): Reiterates 2 STARS (avoid)
Analyst: Markos Kaminis
DSP acquired Teleman Multimedia for $5.0 million. It plans to integrate Teleman's advanced silicon platform for video compression and decompression, which is designed for interphase with image sensors and panel displays, with its own technologies to meet the developing market demand for video phone features. We believe DSP's anticipated earnings per share dilution in 2003 of 11 cents (7 cents from a charge) is a negative for the shares. Given a p-e to growth ratio of 1.4, vs. 1.1 for the S&P SmallCap 600 index, we view DSP as overvalued.
Genentech (DNA ): Reiterates 3 STARS (hold)
Analyst: Frank DiLorenzo
Genentech announced preliminary positive results of its Avastin compound on colorectal cancer, stating that it significantly extended survival in patients with the disease. This follows on heels of a positive FDA panel recommendation for Xolair to treat allergic asthma. Based on our revised net present value analysis, we feel a case could be made that shares are reasonably priced. The stock's p-e to growth ratio of 2.1 times (using our 21.5% earnings per share growth rate for the company) is well above Amgen's 1.5 times and the industry peer group's multiple of 1.5 times. But given the strength of the biotech sector and Genentech's news, we would continue to hold the shares despite the strong run-up today.
ImClone (IMCL ): Downgraded to 1 STAR (sell) from 3 STARS (hold)
Analyst: Frank DiLorenzo
We feel potential approval of Erbitux is already reflected in the price of ImClone shares. However, Erbitux approval is far from a foregone conclusion. Furthermore, with Genentech's Avastin providing a clear survival benefit in colorectal cancer, we believe Erbitux could be the odd man out and also feel that the FDA hurdle may have gotten much higher. Considering the risks in these shares, the company's checkered past, and the potential emergence of Avastin as a major, targeted anti-cancer therapy with significant results, we see no reason to speculate on ImClone.