S&P Upgrades Qualcomm to Accumulate

Also: analysts' opinions on Nokia and Abercrombie & Fitch

Qualcomm (QCOM ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Kenneth Leon

Qualcomm updated its financial guidance for the December quarter with higher CDMA chipset sales and royalty revenues than before. The company sees strong global demand for CDMA handsets boosted by mid-to-high tier phones categories. Qualcomm saw 36% sales growth in fiscal 2003 (Sep.), and S&P now projects 22% growth in fiscal 2004, with gross margins widening to 65%, from 64%. S&P is raising S&P's fiscal 04 earnings per share estimate to $1.47 from $1.20. S&P is also raising S&P's target price to $56, from $50, based on discounted cash-flow analysis. The shares are lightly above peers on a price-to-sales basis, so S&P would accumulate.

Nokia (NOK ): Reiterates 5 STARS (buy)

Analyst: Ari Bensinger

Handset CDMA chip maker Qualcomm raised its fourth-quarter financial guidance on an improving operating outlook. It now sees 110 million to 112 million new CDMA subscriber units in 2003, vs. its prior 106 million to 108 million forecast. S&P expects CDMA handset market-share gains to be a key growth driver for Nokia, and views Qualcomm's higher guidance as a positive data point. 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 discount to the 12-month target price of $22, which is based largely on S&P's discounted cash-flow model.

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

Analyst: Marie Driscoll

The speciality retailer reported softer-than-expected November same-store sales, down 13% on fewer transactions. S&P is lowering the January-quarter earnings per share estimate to 95 cents, from $1.02; lowering the the fiscal 2004 (Jan.) estimate to $2.06, from $2.13; and trimming the fiscal 2005 estimate to $2.32, from $2.43, to reflect S&P's lower sales expectations and the accompanying loss of expense leverage. S&P believes A&F's merchandise margins remain healthy, as does its brand integrity. But S&P is cutting the 12-month target price to $35, from $40, or 15 times S&P's new fiscal 2005 estimate, compared with a forward p-e of 10 for the peer group.

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