S&P Says Accumulate Liz Clairborne

Liz Claiborne (LIZ ): Maintains 4 STARS (accumulate)

Analyst: Michael Driscoll

Mexx unit's first U.S. store opened last week on New York's Fifth Avenue, further cutting Liz Clairborne's dependence on department stores (about 43% of total revenue). Two visits to Mexx by S&P offered evidence of a differentiated, on-trend fashion concept at price points about 20% below the Gap's Banana Republic chain. Liz plans 15 U.S. Mexx stores in 2004 after three openings in 2003. S&P believes Mexx will garner success in U.S. urban markets and estimates market potential for 75 to 100 stores. Mexx is well known in Europe and Canada for its wholesale and retail business, and S&P sees 2003 sales at $600 million.

Furniture Brands (FBN ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Amrit Tewary

S&P sees the recent decline in Furniture Brands as an opportunity to purchase the shares. S&P is concerned about weak demand for high-end furniture, but thinks the industry should see modest pickup in orders and shipments by late 2003. S&P sees mid-single digit sales growth and operating margin expansion in 2004, based on a projection of a gradual recovery in demand. Furniture Brand shares are trading at discount to peers and the S&P 500, at 14 times S&P's 2003 earnings per share estimate of $1.79, but is in line with the stock's historical average p-e. S&P's 12-month target price of $29 assumes a p-e of 14, based on the 2004 earnings per share estimate of $2.10.

Eli Lilly (LLY ): Maintains 3 STARS (hold)

Analyst: Herman Saftlas

Lilly shares are higher Wednesday as the company says the FDA is not requiring added trials for the enhanced Cymbalta antidepressant, even though more studies for incontinence drug duloxetine (the same molecule as Cymbalta) are required. Final FDA approval of Cymbalta hinges on the resolution of manufacturing problems and labeling. S&P expects near-term approval, and projects 2004 sales at more than $200 million. S&P thinks Lilly has a strong pipeline, but it also faces patent litigation on its biggest drug (Zyprexa). S&P views its shares as reasonably valued at a 20% premium to the average big-pharma p-e ratio.

Black & Decker (BDK ): Maintains 5 STARS (strong buy)

Analyst: Amrit Tewary

Black & Decker completed the purchase of the Baldwin and Weiser lockset businesses from Masco for $275 million cash. Adding these businesses, which had combined 2002 sales of $250 million, to Black & Decker's already strong Kwikset brand, gives the company a dominant share in the U.S. security-hardware market. Black & Decker expects the deal will not materially affect 2003 results, but will be accretive in 2004. At 11 times S&P's 2003 earnings per share estimate of $3.77, Black & Decker is at a discount to the S&P 500, peers, and its historical average price-earnings ratio. S&P's 12-month $54 target price assumes a group-average p-e of 13 times S&P's 2004 estimate of $4.12.

Constellation Brands (STZ ): Maintains 5 STARS (strong buy)

Analyst: Anishka Clarke

Constellation Brands posted August-quarter earnings per share of 64 cents, vs. 53 cents -- in line with S&P's estimate. Sales rose 32%, above S&P's expectations, reflecting 21% from recently acquired Australian winemaker BRL Hardy, internal growth of 7%, and 4% in currency gains. Imported beer and spirits sales grew 12%. Margins benefited from volume growth and a favorable product mix, particularly in spirits. S&P is reiterating the 12-month target price of $38, reflecting a projected p-e of 16 times S&P's calendar 2004 earnings per share estimate of $2.40. Trading now at 13 times that estimate -- a discount to peers -- S&P views Constellation Brands shares as attractive.

Solectron (SLR ): Maintains 3 STARS (hold)

Analyst: Richard Stice

Solectron announced a new pact with Nortel Networks and projects revenues of $7.5 billion over the life of the contract, which runs through 2009 and replaces 2000's four-year deal. S&P views the news positively because it should help to solidify key customer accounting for more than 10% of revenues in fiscal 2003 (Aug.). Solectron is in the midst of a major restructuring, and S&P remains cautious on its shares. However, S&P think downside is limited by shares trading below peers on a price/sales basis and by the company's industry position. S&P's 12-month target price is $6.

Before it's here, it's on the Bloomberg Terminal.