S&P Says Accumulate Gilead Sciences

Gilead Sciences (GILD ): Maintains 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Gilead's Emtriva (emtricitabine) received FDA approval for the treatment of HIV infection. Approval was expected and S&P is maintaining its model assumptions, which include Emtriva sales of $19 million in 2003 and $117 million in 2004. S&P also assumes combined peak annual sales of Viread and Emtriva of $1.5 billion toward the end of the decade. S&P is raising its earnings per share estimates for Gilead to 96 cents in 2003, from 94 cents, and hiking the 2004 estimate to $1.41, from $1.39, reflecting a slightly lower cost forecast. Based on a net present-value analysis, S&P views Gilead as moderately undervalued.

Constellation Brands (STZ ): Maintains 5 STARS (buy)

Analyst: Anishka Clarke

The beer and wine distributor reported comparable May-quarter earnings per share of 49 cents, vs. 40 cents -- beating S&P's estimate by 2 cents. Operating margin widened 120 basis points on higher beer sales and lower spirit costs. Despite tough comparisons and a challenging market, sales rose 5% (4% from currency) due to BRL Hardy, imported beer, and the U.K. wholesale business. With sales to retailers up 9% in the May quarter, Constellation Brands sees double-digit shipment growth in the August quarter. S&P is raising its fiscal 2004 (Feb.) earnings per share estimate by 1 cent, to $2.52. S&P views the shares as attractive, at 12 times S&P's calendar 2003 estimate of $2.47 -- a large discount to the S&P 400.

Walgreen (WAG ): Reiterates 4 STARS (accumulate)

Analyst: Joseph Agnese

Walgreen reported June sales increased 14.4% on a 10.1% rise in comp-store sales, both above S&P's expectations. Pharmacy comp-store sales grew 14.5%, above the prior year's level, as prescription volume grew 8.5%. Volume growth was the largest monthly rise since December. Non-prescription comp-store sales grew 3.5%, below the 3.7% rise in May but above the prior year's levels. Although Walgreen shares are trading at 26 times S&P's calendar 2003 earnings per share estimate of $1.19 -- above peers, S&P thinks Walgreen is a clear industry leader that should benefit from favorable industry trends and long-term earnings consistency.

P.F. Chang's China Bistro (PFCB ): Maintains 4 STARS (accumulate)

Analyst: Markos Kaminis

P.F. Chang's reported second-quarter revenues up 34%, exceeding S&P's expectation of a 31% increase. Growth was driven by a same-store sales gain of 5.4% at Bistro locations. Pei Wei locations, with only six comparable stores, showed a decrease of 0.1%. The company did not revise earnings per share guidance, but S&P is adjusting its second-quarter earnings per share estimate upward by a penny, to 27 cents. In S&P's view, P.F. Chang's management's execution has been exemplary. At 45 times S&P's $1.08 2003 earnings per share estimate, S&P thinks the premium to peers' valuation is warranted by execution and growth prospects.

PeopleSoft (PSFT ): Reiterates 3 STARS (hold)

Analyst: Jonathan Rudy

PeopleSoft expects total second-quarter revenue of $490 million to $500 million, with license revenue of $105 to $115 million, which is better than S&P's estimates. The company anticipates operating earnings per share to be 13 cents to 14 cents, while S&P's estimate had been 11 cents. S&P views these results as impressive, particularly in a critical quarter for PeopleSoft to execute in order to fend off Oracle's hostile buyout bid. Despite these solid results, S&P would not add to positions amid the uncertainty surrounding potential mergers with Oracle and/or J.D. Edwards.

Invitrogen (IVGN ): Reiterates 4 STARS (accumulate)

Analyst: Mark Basham

Further details provided in an afternoon conference call confirmed S&P's expectations on the proposed acquisition of Molecular Probes. Assuming a close by the end of the third quarter, S&P is raising the operating earnings per share estimates for 2003 to $2.10, from $2.05, and for 2004 to $2.50, from $2.30. Incorporating the proposed $325 million all-cash deal into S&P's discounted cash-flow analysis, the revised 12-month price target is $50, up from $39 previously, because the expected return on capital is significantly higher vs. the current estimated 2% yield on invested cash balances.

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