S&P Upgrades Teradyne to Buy

Teradyne (TER ): Upgrades to 5 STARS (buy) from 2 STARS (avoid)

Analyst: Richard Tortoriello

S&P believes Teradyne, the world's largest maker of semiconductor test systems, stands to benefit from an incipient recovery in the semiconductor industry. Orders rose 23% quarter-over-quarter in the first quarter and 5% in the second quarter, and with utilization rates on advanced test equipment high, S&P expects continued gains going forward. Teradyne has reduced the breakeven level significantly. S&P expects breakeven earnings per share in the fourth quarter, and forecasts earnings per share of 47 cents in 2004 and 95 cents in 2005. With shares below their historical averages on both price-to-sales and price-to-book bases, S&P would purchase shares.

Comcast (CMCSA ): Maintains 5 STARS (buy)

Analyst: Tuna Amobi

The recent decision by Comcast to opt out of the Vivendi auction did not come as a surprise to S&P. But a subsequent announcement by both parties of plans to seek a content and distribution alliance did surprise S&P. While Vivendi reportedly also stated that such plans would not meddle with its action, S&P views the development as indicative of a possible Vivendi fall-back strategy, with its $14.5 billion asking price generally considered lofty. Although details are still remote, S&P's preliminary take is that such an alliance would greatly bolster Comcast's long-term standing in content.

Toys 'R' Us (TOY ): Maintains 4 STARS (accumulate)

Analyst: Thomas Graves

The toy store chain's second-quarter loss of 5 cents vs. 8 cents is a penny better than S&P's estimate. Results from U.S. toy business were somewhat disappointing, but S&P is generally pleased by the improvement from Babies 'R' Us, the international toy division, and S&P is adjusting the fiscal 2004 (Jan.) earnings per share estimate to $1.03 (with a 13-cent negative impact from an accounting change), from $1.05. S&P projects $1.25 fiscal 2005, helped by the absence of unusual items. As the focus shifts more to fiscal 2005, S&P looks for some p-e expansion, but thinks the multiple will remain below that of the S&P 500. This leads to a 12-month target price of $14.

Lowe's (LOW ): Maintains 4 STARS (accumulate)

Analyst: Yogeesh Wagle

The home-improvement retailer's July-quarter earnings per share of 75 cents, vs. 59 cents, handily topped S&P's 68 cents estimate. Sales rose 17%, driven by a solid 6.9% same-store sales gain over the prior-year quarter's 6.8% increase. Sales growth was broadbased across all product categories and regions. Operating margin improved 80 basis points on improved sourcing, lower shrinkage and selling, general, and administrative expenses leverage. S&P sees earnings per share of $2.28 in fiscal 2004 (Jan.) and $2.70 in fiscal 2005. With an 0.9 p-e-to-growth multiple, based on S&P's fiscal 2005 estimate, and a 20% three-year earnings per share growth outlook -- below key peers and the S&P 500 -- S&P believes the stock has appeal. The 12-month target price is $59.

Altria (MO ): Maintains 3 STARS (hold)

Analyst: Anishka Clarke

Late Friday, Madison County, Ill., Circuit Court Judge Nicholas Byron ordered Philip Morris U.S.A., a unit of Altria, to post the original $12 billion bond set in the Price class-action judgment in March. Philip Morris was found liable for $7.1 billion in compensatory damages and $3 billion in punitive damages. In July, an Illinois appeals court contended that Byron had no discretion to reduce the bond amount to $6 billion in April. Altria is appealing to the Illinois Supreme Court. In S&P's view, upholding a $12 billion bond is unlikely, given the possible bankruptcy effects, i.e., the loss of state excise taxes and Master Settlement Agreement payments. Despite a 6% yield and a p-e of 8.5 times S&P's 2003 estimate of $4.64, a discount to the S&P 500, S&P recommends investors hold Altria, given the legal risk.

Sempra Energy (SRE ): Maintains 4 STARS (accumulate)

Analyst: Craig Shere

S&P sees a power outage resulting in an increased long-term transmission investment. But S&P looks for the blackout's investigation to take weeks, and thinks the implementation of solutions will take years. Longer term, S&P sees energy merchants benefiting from greater federal oversight, as the lowest-cost power flows more freely. But profitable plants in constrained markets may be hurt in the near term if transmission bottlenecks are eradicated. Given Sempra's proximity to California's transmission bottleneck, S&P sees the company benefiting if the Federal Energy Regulatory Commission increases returns for new transmission investment.

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