S&P Ups Yahoo to Hold

Yahoo! (YHOO ): Upgrades to 3 STARS (hold) from 1 STAR (sell)

Analyst: Scott Kessler

S&P views Yahoo as benefiting from improving prospects for online advertising and successes in its search and international businesses. S&P thinks Tuesday's announcement of the merger between sponsored-search firms and the U.K.'s Espotting may prompt Yahoo to act to further consolidate this market to its benefit. Although Yahoo trades at notable premiums to its peers and the S&P 500 on a p-e and and p-e-to growth basis, S&P thinks favorable economic and technology trends, along with investment demand for growth stocks, will contribute to stock performance on par with the S&P 500.

Electronic Data Systems (EDS ): Maintains 2 STARS (avoid)

Analyst: Richard Stice

At Tuesday's analyst meeting, EDS detailed a strategic outlook that includes pretax restructuring charges and asset write-downs of $425 million to $475 million in 2003. In addition, the company plans to increase its focus on the business process outsourcing market. S&P believes these moves are necessary, given the end-market climate and competitive threats. S&P is lowering the 2003 earnings per share estimate to $1.42, from $1.61. Shares trade at a discount to the S&P 500 and the historical average. But amid ongoing information-technology spending weakness, turnaround challenges, and a formal Securities and Exchange investigation, S&P would avoid EDS.

Best Buy (BBY ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Amrit Tewary

Best Buy posted May-quarter operating earnings per share of 21 cents, vs. 24 cents -- a penny above S&P's estimate. S&P is more optimistic on the stock as the company cited higher comp-store sales growth toward the end of the May quarter, along with market share gains in key digital product categories, and some productivity gains. S&P is raising its earnings per share forecast for the August quarter to 31 cents, from 27 cents, and for full-year fiscal 2004 (Feb.) to $2.30, from $2.15. With a p-e of 19 times S&P's fiscal 2004 estimate, about in line with the S&P 500, and projected mid-teens long-term growth, S&P views Best Buy as attractive. S&P's historical p-e model suggests Best Buy is undervalued.

MedImmune (MEDI ): Maintains 5 STARS (buy)

Analyst: Frank DiLorenzo

MedImmune's FluMist received FDA approval for the prevention of flu in individuals aged 5 to 49. S&P expects an aggressive marketing campaign by partner Wyeth regarding FluMist's intranasal convenience. S&P sees MedImmune moving toward new clinical trials in an attempt to expand FluMist's approved age range. On S&P's 2004 estimate, MedImmune's p-e-to-growth growth ratio of 1.0 remains at a sharp discount to S&P's biotech peer average of 1.5. S&P thinks MedImmune is underappreciated by the market and is raising its price target to $50, from $45, based on S&P's updated net present value analysis.

Pfizer (PFE ): Maintains 5 STARS (buy)

Analyst: Herman Saftlas

The stock is higher after an upbeat analyst meeting. Pfizer sees lower-than-expected 2003 earnings per share of $1.73, due to 7 cents from Pharmacia inventory workdowns. Pfizer forecast a 12% drop in second-quarter earnings per share, but sees gains of 13% for the third quarter, and 15% for the fourth quarter. The integration of Pharmacia was faster than expected, with annual cost synergies pegged at $1 billion in 2003, and $3 billion in 2004. Boosted by new drugs, the company projects 2004 earnings per share to rise 23%, to $2.13, on a 20% advance in sales. S&P still views Pfizer as undervalued relative to its growth rate, peer valuations, and intrinsic worth, based on S&P's discounted cash flow model.

Bear Stearns (BSC ): Maintains 4 STARS (accumulate)

Analyst: Robert McMillan

Bear Stearns' May-quarter earnings per share of $2.05, vs. $2.59 is well above S&P's estimate of $1.48. The decline reflected lower commissions, investment banking sales, and interest income, which offset the impact of higher principal transactions (including a $261 million investment gain from an initial public offering) and lower operating expenses. Fixed income results were very strong. S&P looks for the commissions and investment banking businesses to improve if market momentum continues. S&P is reviewing its estimates, and expects Bear Stearns shares, at 12 times S&P's $6.66 earnings per share estimate for 2003 and at a discount to the S&P 500, to outperform.

Ciena (CIEN ): Maintains 3 STARS (hold)

Analyst: Kenneth Leon

Ciena announced that KPN EuroRings, a unit of Dutch telecom carrier KPN Royal, has deployed Ciena's ONLINE Metro(TM) platform; S&P views this as another step in the right direction. The Pan-European unit of KPN selected Ciena over Alcatel, Lucent, and Nortel. Critical to its strategy, the undisclosed KPN contract gives Ciena another incumbent carrier win, adding to British Telecom, Telmex, and AT&T. New orders are a plus, but S&P doesn't see Ciena reaching profitability anytime soon. As an optical leader, Ciena trades above the market on fiscal 2003 price-to-sales multiple of 7.4, but S&P would hold the shares.

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