S&P Says Buy Nokia

Nokia (NOK ): Maintains 5 STARS (buy)

Analyst: Ari Bensinger

Mobile-phone maker Nokia confirmed its 2003 mobile-phone forecast of 460 million units, up about 15% year-to-year, and fourth-quarter earnings per share guidance of 21 euro cents to 23 euro cents. In light of several industry data points indicating fourth-quarter handset sales are off to a strong start, S&P views the confirmation as conservative and sees possible upside to S&P's fourth-quarter earnings per share estimate of 23 euro cents. Given the company's dominant market share and S&P's view of superb execution and strong cash-flow generation, S&P would buy Nokia at a notable discount to the 12-month target price of $22, which is based largely on S&P's discounted cash-flow model.

Campbell Soup (CPB ): Maintains 3 STARS (hold)

Analyst: Richard Joy

Campbell Soup reported October-quarter earnings per share of 51 cents, vs. 47 cents -- 2 cents better than S&P's estimate. Net sales gained 12%, with volume/mix up 2%, prices up 2%, promotions down 2%, currency up 4%, and acquisitions adding 2%. Several businesses posted higher volumes but high-margin condensed soup volumes fell 7%. Despite the earnings per share upside, S&P is reducing the fiscal 2004 (July) earnings per share estimate by 3 cents, to $1.57, reflecting Campbell's increase of promotional spending to combat competitive pressures. S&P believes shares are worth holding at 16 times the calendar 2004 earnings per share estimate of $1.62, in line with peers.

Hot Topic (HOTT ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Marie Driscoll

Given Hot Topic's largely under-served retail niche, S&P projects a five-year earnings compound annual growth rate of 22% as the Hot Topic store base expands and the Torrid store concept likely becomes more significant. S&P is raising the January-quarter earnings per share estimate to 42 cents, from 41 cents, and is upping the fiscal 2004 (Jan.) estimate to 94 cents, from 89 cents. Also, S&P is raising the fiscal 2005 estimate to $1.15, from $1.05; these revisions reflect earnings momentum and store productivity. However, S&P believes that, with a price-earnings of 26 (based on S&P's fiscal 2005 earnings per share estimate), Hot Topic shares reflect the aforementioned opportunities and S&P would hold the shares, which have reached S&P's $29 12-month target price.

Time Warner (TWX ): Maintains 4 STARS (accumulate)

Analyst: Tuna Amobi

Time Warner agreed to sell Warner Music Group (WMG ) to an investor group led by Edgar Bronfman for $2.6 billion in cash and other considerations. Pending necessary approvals, the deal is expected to close in 60 days and gives Time Warner the option to buy up to 15% of Warner Music within three years of closing, and up to 19.9% under certain circumstances. S&P sees the planned sale as another right step in the quest to pare Time Warner's debt burden, with ongoing efforts to shed its non-core assets. Based on discounted cash-flow and relative enterprise-value-to-EBITDA analyses, S&P's 12-month target price remains $19.

Delta Air Lines (DAL ): Maintains 3 STARS (hold)

Analyst: James Corridore

Leo Mullin, chairman and CEO, will step down as CEO on Jan. 1 and will give up his position as chairman in April. Gerard Grinstein, who is 71, will take over as CEO, while former General Motors chairman John Smith will become non-executive chairman. Grinstein has experience running Western Airline, and Smith has experience running a major unionized organization. S&P thinks Grinstein and Smith will be able to provide a stopgap until a long-term successor can be found, but doesn't think they will be any more successful than Mullin at getting labor concessions.

Boeing (BA ): Maintains 5 STARS (buy)

Analyst: Robert Friedman

Despite Boeing's recent dismissal of its CFO over the hiring of a Boeing defense official who allegedly possessed insider sales information, S&P thinks chances are low that the latest Boeing crisis will affect the company's long-term free-cash flow growth potential. Although most of Boeing's businesses possess mediocre economics and growth prospects, S&P thinks the company will still post a modest, 6% 10-year free-cash compound annual growth rate and a 12% return on equity. With shares trading at a 20% discount to S&P's discounted cash-flow-based $50 target price, should the shares retreat on this news, S&P would view this as an enhanced buying opportunity.

Johnson & Johnson (JNJ ) and Boston Scientific (BSX ): Reiterates 4 STARS (accumulate)

Analyst: Robert Gold

Late Friday, a U.S. District Court in Delaware denied requests for preliminary injunctions filed by both Boston Scientific and Johnson & Johnson. Both companies, rivals in the emerging drug-coated coronary stent market, have challenged each other's patents as the battle for U.S. market share approaches. S&P believes this court decision largely reflected an effort to maintain a fully competitive drug-coated stent market. In S&P's view, the decision removes a significant overhand on Boston Scientific shares. S&P is keeping the 12-month targets of $40 on Boston Scientific and $57 on J&J.

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