S&P Says Hold Chico's
Chico's (CHS ): Reiterates 3 STARS (hold)
Analyst: Yogeesh Wagle
The women's retailer's April-quarter earnings per share was 27 cents, vs. 23 cents, a penny below S&P's estimate. Same-store sales grew 7.8%, vs. 13.2% for the prior-year period, impacted by the war in Iraq and harsh winter weather. S&P expects increased marketing spending will help add more customers to the company's popular passport program and enhance repeat purchases. However, with its new Pazo concept still unproven and in a sluggish retail environment, S&P thinks Chico's should see a slowdown in growth as it cycles against last year's strong gains. With a 0.9 p-e-to-growth ratio, S&P views Chico's shares as fairly valued.
Hovnanian Enterprises (HOV ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: James Corridore, Michael Jaffe
The maker of single-family detached homes and townhouses reported earnings per share of $1.60, vs. 80 cents, handily beating S&P's estimate of $1.25 and the consensus of $1.21. Hovnanian raised the fiscal 2003 earnings per share estimate to $6.50-$6.75, from $5.25-$5.50, and sees fiscal 2004 at $7.50, well above S&P's current $5.70 target. S&P is putting its estimates under review. Hovnanian is aided by strong demand -- evidenced by record deliveries, a 16% rise in contracts, and an 18% rise in backlog. Shares are trading at seven times Hovnanian's fiscal 2004 earnings per share estimate, making the shares attractive in the middle of their historical p-e range; S&P thinks stable interest rates and strong growth makes a case for p-e expansion.
Krispy Kreme Doughnuts (KKD ): Maintains 3 STARS (hold)
Analyst: Dennis Milton
Krispy Kreme reported earnings per share of 21 cents before a one-time gain, up 41% from a year ago and a penny ahead of S&P's estimate. Revenues jumped 34% year to year, reflecting expansion, the acquisition of stores from franchisees, and systemwide same-store sales growth of 12%. S&P is raising its fiscal 2004 (Jan.) earnings per share estimate by 2 cents, to 92 cents, to account for strong sales trends. S&P's fiscal 2004 Standard & Poor's Core Earnings estimate, which includes a stock option expense of 16 cents, is 76 cents. At 45 times this estimate, S&P thinks Krispy Kreme's valuation adequately reflects its excellent growth prospects.