S&P Upgrades Wachovia to Buy

Wachovia (WB ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Evan Momios

Expectations, including S&P's, of accelerated economic growth in the second half and of a sufficiently steep yield curve creates a more favorable environment than in recent quarters for large regional banks. With a diversified revenue mix, improving asset quality, and a wide distribution network, S&P thinks Wachovia is well-positioned to accelerate earnings growth in the quarters ahead. S&P's 12-month target price of $49 is mainly based on the assumption of 11% earnings growth for the next five years, and is at the mid-point of S&P's discounted dividend and terminal p-e valuations.

JetBlue (JBLU ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: James Corridore

Discount carrier JetBlue's shares are now within 15% of S&P's $60 12-month target price. While S&P believes they will outperform the market, the amount of potential appreciation no longer warrants S&P's highest recommendation. Volatility in airline stocks also argues for more caution, given the proximity to S&P's target price. S&P still believes JetBlue will be able to grow its earnings by 35% annually for the next five years. Shares are currently trading at 31 times S&P's 2004 earnings per share estimate of $1.70; S&P thinks the shares should get a p-e of 35, which equates the stock price to JetBlue's growth potential and gives S&P a $60 target.

Rare Hospitality (RARE ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Dennis Milton

Shares of this restaurant operator, whose holdings include Bugaboo Creek Steak House and LongHorn Steakhouse, have soared nearly 75% from an October 2002 low. The stock now trades at 21 times S&P's 2003 earnings per share estimate of $1.76, a significant premium to peers. S&P believes the current valuation adequately reflects the company's strong expansion growth prospects and debt-free balance sheet. S&P's 12-month target price of $41 reflects a forward p-e ratio of 21, in line with the current S&P SmallCap 600 Index, and S&P's 2004 earnings per share estimate of $1.96. At the current valuation, S&P would not add shares, but would continue to hold existing positions.

CDW Corp. (CDWC ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Amrit Tewary

S&P sees greater likelihood of a strong sales pickup in 2004 for computer retailer CDW's corporate segment, based on S&P's belief that an improved economy should encourage small/medium business customers to raise their information-technology spending budgets to more normal levels. Also, S&P sees CDW benefiting from strength in the public segment and easier sales comparisons. S&P is keeping the 2003 earnings per share estimate at $2.19, but is raising 2004's to $2.49 from $2.36. Shares trade at a premium to the S&P 500 but CDW's p-e of 23 is at a discount to its historical average p-e of 25. S&P's 12-month, $62 target price assumes a p-e of 25 times the 2004 estimate.

Brown-Forman (BF.B ): Maintains 3 STARS (hold)

Analyst: Anishka Clarke

Before litigation charges, July-quarter earnings per share of 62 cents, vs. 53 cents, is 7 cents below S&P's estimate. Sales rose 11% on strong growth in core spirits despite a decline in Brown-Forman's consumer durables. Earnings were aided by distribution changes, currency gains, and lower taxes. Even with further weakness in wines and consumer durables, S&P sees fiscal 2004 (April) earnings per share up 15% on strong growth in spirits and fewer shares. At 20 times S&P's calendar 2003 estimate of $4.01, above peers, S&P thinks Brown-Forman is worth holding. S&P's 12-month target price is $81, reflecting p-e ratio of 18, based on S&P's $4.49 calendar 2004 earnings per share estimate.

Corinthian Colleges (COCO ): Maintains 5 STARS (buy)

Analyst: Michael Jaffe

The for-profit education provider posted 39 cents vs. 27 cents June-quarter earnings per share -- 2 cents below S&P's estimate. The rise reflects 28% higher same-school revenues, takeovers, and new campuses. Corinthian sees 20% to 25% revenue gains for the next few years without takeovers, but projects recent purchases bringing 44% to 46% gains in fiscal 2004 (June). Also, Corinthian thinks the integration of takeovers will narrow earnings per share gains to 24% to 26% in fiscal 2004, or $1.77 to $1.80. However, given prior integration success, S&P believes the guidance is too cautious. S&P still sees $1.85 earnings per share in fiscal 2004, and thinks Corinthian is undervalued at 1.2 times the 25% growth forecast for the next few years.

Dollar Tree Stores (DLTR ): Reiterates 3 STARS (hold)

Analyst: Jason Asaeda

Dollar Tree posted July-quarter earnings per share of 25 cents, vs. 21 cents -- 2 cents above S&P's estimate. Results benefited from a strong, 5.1% comparison-store sales gain, which was partly offset by lower merchandise margins, the consolidation of synthetic leases, and higher depreciation.

Given sales momentum and earnings accretion that S&P expects from the recently acquired Greenbacks chain, S&P is raising the fiscal 2004 (Jan.) earnings per share estimate by 6 cents, to $1.56, and is upping fiscal 2005's by 7 cents, to $1.81. At 21 times S&P's fiscal 2005 estimate, Dollar Tree trades below peers. Applying a p-e of 25 to S&P's forward 12-month earnings per share projection of $1.65, S&P's 12-month target price is $41.

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