S&P Says Hold Harley-Davidson

Harley-Davidson (HDI ) 49.56 ): Reiterates 3 STARS (hold)

Analyst: Thomas Graves

Harley-Davidson's 100th anniversary celebration is culminating this weekend. S&P is raising the 2003 earnings per share estimate to $2.40 from $2.35, and is raising 2004's estimate to $2.63 from $2.61. However, S&P expects profit growth in the second half, vs. a year earlier, to be limited by product mix and costs from a new production facility. And after this year's anniversary activity, S&P expects relatively tough earnings per share comparisons for 2004's first half. Based on S&P's view of Harley's expected growth and strong flagship brand, S&P believes it merits about a 20% premium to the S&P 500, which leads to S&P's 12-month target price of $56.

RadioShack (RSH ): Maintains 3 STARS (hold)

Analyst: Amrit Tewary

RadioShack disclosed Friday that it expects its earnings to be at or above the upper range of the Street's forecasts. It sees third-quarter earnings per share of about 30 cents to 33 cents, citing better trends than expected in most income statement lines. S&P thinks sales of radios, batteries, and flashlights during the recent blackout will likely boost third-quarter results. S&P is raising the third-quarter earnings per share estimate to 30 cents from 28 cents, and is raising the full-year 2003's earnings per share estimate to $1.67 from $1.65. Also, S&P is raising 2004's estimate to $1.77 from $1.74. With a ratio of p-e-to-growth at 1.5, RadioShack is at slight premium to the S&P 500. S&P's 12-month target price of $32 assumes a p-e of 18 times the 2004 earnings per share estimate.

Applied Micro Circuits (AMCC ): Maintains 3 STARS (hold)

Analyst: Thomas Smith, Richard Tortoriello

Applied Micro agreed to acquire JNI Corp. for $7 per share cash, or about $190 million. JNI provides Fibre Channel hardware and software, and the acquisition would expand Applied Micro's markets from wide area networks to storage area networks. Pending approvals, the transaction is expected to close in the fourth-quarter of the calendar year. JNI is the fourth largest provider in the Fibre Channel Host Bus Adapter market, which S&P believes will show above-average growth. Applied Micro is attractive on a price/book basis. But with profitability not projected until fiscal 2005 (March), S&P would not add to positions.

Novellus (NVLS ): Maintains 3 STARS (hold)

Analyst: Richard Tortoriello

In a mid-quarter update, the chip-equipment maker reiterated sales, order, and earnings per share guidance for the third quarter. Novellus will also take a $70 million restructuring charge, mostly from the write-down of its 200mm inventory. With a slow industry recovery so far, and attractive pricing for 300mm tools, Novellus says it's likely that 300mm vs. 200mm will make up most of spending going forward. S&P is maintaining the earnings per share estimates of 23 cents in 2003 and 86 cents in 2004. With Novellus selling at 19 times S&P's 2005 cycle-peak earnings per share estimate of $2.09, vs. the previous high-price to cycle-peak multiples of 15 times to 29 times, S&P views Novellus as fairly valued.

Amerada Hess (AHC ): Upgrades to 2 STARS (avoid) from 1 STAR (sell)

Analyst: Tina Vital

Shares have underperformed peers so far in 2003, which S&P sees as a reflection of concerns about the company's ability to grow its upstream production. While Amerada Hess is reshaping its upstream portfolio, barrel of oil equivalent production fell 20% in the second quarter on asset sales and field declines. With production dropping, it has become difficult for the company to maintain the pace of its reductions in production costs. And S&P believes the company will continue to face a formidable challenge in reversing field declines. However, trading only 7% above S&P's 12-month target price, S&P is upgrading Amerada Hess to avoid from sell.

Barrick Gold (ABX ) and Newmont Mining (NEM ): Maintains 4 STARS (accumulate) 39.36 ); Placer Dome (PDG ): Maintains 3 STARS (hold)

Analyst: Leo Larkin

S&P continues to have a favorable opinion on the gold group despite recent increases in share prices. S&P sees overhead resistance in the spot price for gold at $389 and wouldn't be surprised to see a pullback near-term if the price fails to break above that level. However, long-term fundamentals remain intact, including low short-term interest rates, volatile equity markets, gold industry consolidation, rising commodity prices, and a weak U.S. dollar.

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