S&P Says Hold Motorola

Motorola (MOT ): Reiterates 3 STARS (hold)

Analyst: Kenneth Leon

Shares are benefiting from the cell-phone maker's intention of separating its semiconductor unit into a publicly traded company. This afternoon at the Gartner Technology Investor Summit, the CFO said Motorola's S-1 registration will be filed before the end of 2003 and the company is targeting late March to early April 2004 to launch an initial public offering for the unit. S&P thinks the potential benefits of Motorola's plans for its semiconductor business outweigh what S&P views as a weak sales and earnings outlook for 2004. Trading at one times S&P's 2004 sales estimate, below peers, S&P would hold Motorola.

Federated Department Stores (FD ): Maintains 4 STARS (accumulate)

Analyst: Jason Asaeda

Federated's October-quarter earnings per share of 36 cents, vs. 38 cents beat S&P's estimate by 5 cents. Results benefited from a modest sales gain and a 70 basis-point increase in gross margin. Federated expects to book $26 million to $31 million in added costs for its ongoing national Macy's branding strategy through fiscal 2005 (Jan.). But with sales trends improving on successful turnaround initiatives and a rebound in consumer spending, S&P is raising the fiscal 2004 earnings per share estimate by 11 cents, to $3.43, and fiscal 2005's by 5 cents, to $3.73. S&P also is raising the 12-month target price to $58, from $56, based on a discounted cash flow model.

InterActiveCorp (IACI ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Scott Kessler

S&P was encouraged by media company InterActiveCorp's (formerly USA Interactive) Investor Day on Tuesday, and now has greater confidence in the company's ability to maintain and increase market share in its core operating segments, improve operating income before amortization, and achieve adjusted earnings per share growth averaging 25% to 30% through 2008. Based upon a revised discounted cash-flow analysis, S&P is raising the 12-month target price by $2, to $40. Shares have fallen in recent weeks, and S&P now thinks risk-reward considerations warrant a more positive stance.

Computer Sciences (CSC ): Reiterates 4 STARS (accumulate)

Analyst: Richard Stice

The information-technology consulting firm posted September-quarter earnings per share of 60 cents, before 3 cents in acquisition charges, vs. 54 cents -- a penny higher than S&P's estimate. Revenues rose 32% as the federal-government segment business nearly doubled. Europe remained the strongest market geographically. The company has announced $7.8 billion of new contract awards through the first six months of fiscal 2004 (Mar.), exceeding the total for all of fiscal 2003. S&P is raising the fiscal 2004 earnings per share estimate by 8 cents, to $2.85, and sees fiscal 2005 at $3.22. S&P's 12-month target price of $50 combines an analysis of Computer Sciences' price-earnings relative to the S&P 500, and S&P's discounted cash flow model.

Cisco Systems (CSCO ): Reiterates 5 STARS (buy)

Analyst: Megan Graham Hackett

Cisco announced the small acquisition of Latitude Communications. S&P views the price of $80 million, or roughly two times sales, as reasonable, and thinks Latitude's web-conferencing technology assets fit nicely with Cisco's voice over Internet-protocol strategy. There's no change to S&P's estimates, but S&P notes that Cisco expects to take a small non-recurring charge for in-process R&D expenses once the deal closes, which is expected in the January quarter. With Cisco trading below S&P's 12-month target price of $27, based on a discounted cash-flow analysis and a price/sales analysis, S&P views the shares as attractive.

Abercrombie & Fitch (ANF ): Maintains 5 STARS (buy)

Analyst: Michael Driscoll

Abercrombie posted 51 cents October-quarter earnings per share, vs. 48 cents, missing S&P's estimate by a penny per share. S&P thinks the specialty retailer is extremely cautious in its January-quarter outlook; the retailer sees a continuation of a 9% drop in same-store sales and flat earnings per share of 93 cents. S&P thinks Abercrombie will take part in the improving economy, and thinks the growing proportion of the Hollister brand will improve the same-store sales picture in fiscal 2005 (Jan.). S&P expects another retail concept to be announced next year, and sees a return to double-digit earnings per share growth. S&P is lowering the January-quarter earnings per share estimate to $1.02, from $1.06; trimming the fiscal 2004 estimate to $2.13, from $2.18; and cutting the fiscal 2005 estimate to $2.43, from $2.52. Still, S&P's target price remains $40.

Coherent (COHR ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Markos Kaminis

Laser-systems maker Coherent posted a September-quarter loss per share of 29 cents before net charges of 57 cents, vs. a year-ago's operating earnings per share of 9 cents -- 4 cents better than S&P's recently lowered estimate. Net sales rose 2.4%, as growth in the electro-optics segment offset lower sales at the Lambda Physik unit. Gross margin disappointed, and was limited by the product mix, poor capacity usage, inventory write-offs, and warranty costs. Coherent outlined a capacity consolidation plan for the next two to three quarters. In light of Coherent's improving operating environment, restructuring efforts, and a price-to-sales discount to peers, S&P would hold.

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