S&P Says Accumulate Chico's

Chico's (CHS ): Maintains 4 STARS (accumulate)

Analyst: Michael Driscoll

Chico's posted July-quarter earnings per share of 28 cents vs. 19 cents -- 2 cents above S&P and the Street's expectations. Improved merchandise led to 14.6% comp-store sales gain, less markdowns and a wider gross margin. August comp-store percent gains are running in the mid-to-high teens. Chico's purchase of retailer White House is expected to close in mid-September, and should quickly be modestly accretive. S&P is lifting the fiscal 2004 (Jan.) and fiscal 2005 earnings per share estimate by 2 cents to $1.04 and $1.30, respectively. Also, S&P is boosting the 12-month target price by $2, to $34, based on S&P's view that Chico's earnings per share will rise more next year than the S&P 500, and that Chico's will keep about a 40% premium valuation. FileNet (FILE ) and Open Text (OTEX ): Maintains 4 STARS (accumulate); Documentum (DCTM ): Maintains 3 STARS (hold)

Analyst: Scott Kessler

On Wednesday Documentum held an investors meeting at which it said that the third quarter is tracking better than it had expected. Although the company did not raise guidance, it has won four million-dollar deals already in the quarter (two slipped from the second quarter) vs. five last quarter. S&P thinks enterprise content-management software companies should continue to benefit from an improving economy and demand for solutions to address the growing amounts of content and regulatory requirements.

Apollo Group (APOL ): Reiterates 4 STARS (accumulate)

Analyst: Michael Jaffe

The for-profit education provider issued guidance for fiscal 2004 (Aug.) that is in line with S&P's forecasts. It sees revenue rising to $1.7 billion on strong campus and online enrollment gains, and it expects a 29.5% to 30% operating margin with an earnings per share of $1.64. S&P is leaving the fiscal 2004 estimate at $1.65. At 38 times that estimate, Apollo is at a big premium to the S&P 500. But given the 25% earnings per share gains S&P sees for the next few years, Apollo's p-e-to-growth rate of 1.5 times is at a small discount to the S&P 500. S&P views Apollo as the leader in for-profit education, thinks a premium is warranted, and has a $75 12-month target price.

Amgen (AMGN ): Maintains 5 STARS (buy)

Analyst: Frank DiLorenzo

Amgen and Genentech settled a patent dispute over the manufacturing process for Amgen's Neupogen and Neulasta, and Amgen will make a undisclosed one-time payment to Genentech. Amgen says the charge will negatively impact its 2003 GAAP earnings per share by about 5 cents, while Genentech sees a positive 20 cents impact to its 2003 GAAP earnings per share. S&P believes the settlement is amicable, and immaterial to the valuation and outlook for both firms on a long-term basis. S&P is keeping the pro forma earnings per share estimates for Amgen at $1.94 for 2003 and $2.50 for 2004; and for Genetech at $1.20 for 2003 and $1.42 for 2004.

Zimmer Holdings (ZMH ): Reiterates 4 STARS (accumulate)

Analyst: Robert Gold

Shares of the orthopaedic products maker are up on news that an attempt by Britian's Smith & Nephew to acquire Swiss medical-device maker Centerpulse has ended, clearing the path for Zimmer to consummate its proposed $3.2 billion purchase of Centerpulse. S&P believes Zimmer will obtain shareholder approval for the deal no later than November, and expects modest earnings per share accretion in 2004 and 2005. S&P expects the planned deal to significantly bolster the company's orthopaedic presence in Europe. In S&P's view, an accelerated growth rate creates some valuation expansion opportunities for Zimmer, despite potential integration risks and an already premium valuation relative to peers.

FleetBoston Financial (FBF ): Maintains 3 STARS (hold)

Analyst: Evan Momios

FleetBoston agreed to acquire Pennsylvania thrift Progress Financial for about $211 million of stock. The deal will add about $740 million of deposits and 21 offices to FleetBoston's Pennsylvania franchise, and is expected to close in the first quarter, subject to approvals. Progress Financial is too small to affect FleetBoston's 2004 earnings per share, but the proposed acquisition confirms S&P's expectation of increased merger and acquistion activity for FleetBoston and the industry in the quarters ahead. S&P would continue to hold FleetBoston shares, which offer an above-average dividend yield but are fairly valued, in S&P's opinion.

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