S&P Says Accumulate Walgreen
Walgreen (WAG ): Maintains 4 STARS (accumulate)
Analyst: Joseph Agnese
Drugstore chain Walgreen posted August-quarter earnings per share of 27 cents, vs. 24 cents -- a penny below S&P's estimate. Comparison-store sales rose 9.9%, as S&P expected, with pharmacy sales rising 13.6%. Non-pharmacy comparision-store sales rose 4.1%, vs. 3.2% growth in the May quarter. Margins benefited from improved purchasing practices and growth of higher margin non-pharmacy items, despite the shift in product mix. Walgreen plans net additions of 365 stores in fiscal 2004 (Aug.), vs. 344 stores in fiscal 2003. The shares trade at 23 times S&P's $1.35 fiscal 2004 earnings per share estimate, above peers. S&P thinks Walgreen should benefit from favorable industry trends and long-term earnings consistency.
Intrado (TRDO ): Maintains 5 STARS (strong buy)
Analyst: Todd Rosenbluth
Intrado shares are down Monday. Even with a strong recent run, S&P believes the shares of this 9-1-1 data manager are undervalued and will benefit from Congressional legislation intended to increase wireless E-9-1-1 spending that is waiting to reach the floor. S&P's analysis shows that the federally mandated Phase I deployments in large markets are still waiting for completion, creating pent-up demand for Intrado services. S&P has a12-month target price of $30, based on a blend of relative price-earnings-to-growth analysis and discounted cash flow. S&P would add to positions.
PNC Financial Services (PNC ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)
Analyst: Evan Momios
PNC announced that the Office of the Comptroller of the Currency has lifted its formal written agreement with the company's principal bank subsidiary. S&P believes this decision removes the regulatory risk as the primary deterrent of stock price appreciation in the quarters ahead. PNC's stock recently traded at 11 times S&P's 2004 earnings per share estimate of $4.20, vs. 12 times its earnings per share estimate during the past two years. With a 4% dividend yield and regulatory concerns removed, in S&P's view, S&P would hold the shares. The 12-month target price is $50, or 12 times S&P's 2004 earnings per share estimate.
John Hancock Financial (JHF ): Reiterates 3 STARS (hold)
Analyst: Catherine Seifert
John Hancock agreed to be acquired by Canadian-based Manulife Financial for about $10.4 billion in stock. Pending approvals, John Hancock shareholders are set to receive 1.1853 of an Manulife common share for every John Hancock share. Although news leaks about this deal drove up John Hancock shares, the company's holders are set to receive about $35.80 a share in Manulife stock (based on Sept. 26 data). At about 1.6 times John Hancock's tangible book value, S&P believes the takeover premium is adequate, particularly in light of the industry average takeover premium, which S&P estimates to be about 1.2 times the book value.