S&P Says Buy Lehman Brothers

Lehman Brothers (LEH ): Maintains 5 STARS (strong buy)

Analyst: Robert McMillan

August-quarter earnings per share of $1.81, vs. 70 cents, is above S&P's $1.23 estimate. Lehman's diversified investment banking, capital markets, and client services businesses contributed to strong growth. S&P looks for Lehman's very strong fixed-income business to slow gradually, but remain healthy. Meanwhile, the firm's efforts to strengthen its fund-management franchise should also help diversify results and benefit cross-cycle earnings. S&P is raising the fiscal 2003 (Nov.) earnings per share estimate to $6.27, from $5.38, and fiscal 2004's estimate to $6.08, from $5.58. S&P is also raising the 12-month target price to $88, from $81.

Winnebago Industries (WGO ): Intitates with 3 STARS (hold)

Analyst: Efraim Levy

S&P thinks think sales of this leading manufacturer of motor homes can grow 7%-9% annually for the next three to five years as the industry benefits from favorable demographics. S&P views the company's balance sheet as healthy and believes an up-trending cash flow can support sales expansion and earnings-enhancing stock repurchases. S&P sees earnings per share of $2.59 in fiscal 2003 (Aug.) rising to $3.09 in fiscal 2004. Based on a combination of p-e and discounted cash flow analyses, S&P's 12-month target price is $51. S&P views the stock as a market performer.

Comcast (CMCSA ): Reiterates 5 STARS (strong buy), and Liberty Media (L ): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi

A dispute over a contract of AT&T Broadband, which was acquired by Comcast in November, 2002, with Liberty's Starz Encore unit is settled. S&P is relieved by the resolution, which should lift the cloud on the rollout by Liberty of on-demand and high-definition programming. S&P believes Comcast comes out ahead because the deal calls for per-subscriber payment rather than a flat fee, with Comcast not liable for incremental program costs, which AT&T Broadband was. S&P's 12-month target price for Comcast is $36, a 20% enterprise value/EBITDA premium to peers, and $11 for Liberty, a modest discount to net asset value.

Pep Boys (PBY ): Reiterates 3 STARS (hold)

Analyst: Yogeesh Wagle

Automotive parts retailer Pep Boys provided earnings per share guidance below S&P and the Street's expectations. It sees October-quarter earnings per share at 23 cents to 25 cents, and January-quarter earnings per share at 2 cents to 4 cents, compared with S&P's 26 cents and 14 cents estimates, respectively. S&P is cutting the fiscal 2004 (Jan.) earnings per share estimate to 75 cents from 85 cents, and thinks the benefits from major restructuring actions announced in July will likely be seen in fiscal 2005. Although the p-e of 15, based on the $1.06 earnings per share that S&P sees for fiscal 2005, is below that of the S&P 500, S&P believes Pep Boys is adequately valued for a company in transition. S&P's 12-month target price is $18, using a small multiple expansion to 17 times the fiscal 2005 earnings per share estimate.

AutoZone (AZO ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Yogeesh Wagle

The automotive parts retailer posted August-quarter earnings per share of $2.29, vs. $1.73, before one-time charges, above S&P's $2.00 estimate. The prior-year period had an extra week. Domestic same-store sales grew 3% on double-digit growth in commercial sales. Operating profit increased 260 basis points due to well-controlled costs. S&P is raising the fiscal 2004 earnings per share estimate to $6.02, from $5.90, on further cost improvement, new merchandise introductions, and greater penetration of private-label brands. The shares are trading at a discount to peers and the S&P 500. S&P's 12-month target price is $106, or 18 times S&P's fiscal 2004 estimate.

Univision Radio (UVN ): Maintains 4 STARS (accumulate)

Analyst: Tuna Amobi

The Federal Communications Commission has given its O.K. to the $3.5 billion stock-swap merger of Hispanic Broadcasting and Univision Radio on a 3-2 party-line vote. This deal creates the first Spanish media conglomerate with 2 TV broadcast networks, 1 cable network, 52 TV stations, 69 radio stations, and nascent music and Internet businesses. Hispanic Broadcasting is now Univision Radio. S&P sees the combined entity as uniquely placed to capture prime advertising dollars in the high-growth Spanish demographic segment. S&P continues to advise investors to accumulate Univision shares.

Verizon Communications (VZ ): Reiterates 3 STARS (hold)

Analyst: Todd Rosenbluth

Following Tuesday's conference call, S&P is lowering the 2003 and 2004 operating earnings per share estimates by 14 cents each, to $2.58 and $2.48. S&P is largely unsurprised by the long-distance carrier's slowed revenue growth stemming from the jobless recovery and increased wholesale competition. However, S&P has also lowered the EBITDA projections to reflect higher repair and medical costs. The discounted cash flow model is unchanged, but S&P is reducing its 12-month target price to $32, from $34, to reflect the lower estimate. S&P favors Verizon over other Baby Bells due to strength in its wireless business, and would hold its shares.

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