S&P Says Buy Triad Hospitals

Triad Hospitals (TRI ): Reiterates 5 STARS (buy)

Analyst: Frank Connelly

A guidance update this morning supports S&P's outlook for 2004. Triad sees 6% volume growth for fourth-quarter 2003, well ahead of expectations, but with about half of the growth from lower-margin flu cases. Triad is sticking by the 10% "doubtful accounts" guidance for fourth-quarter 2003 and all of 2004, which S&P thinks will prove conservative as the year progresses. Divestiture guidance is neutral, vs. expectations for accretion, but S&P thinks Triad's operating outlook is more important. There's no change to S&P's 2004 earnings per share estimate of $2.34. S&P's $41 12-month target price assumes that Triad shares trade at about 17 times S&P's 2004 estimate.

Foot Locker (FL ): Reiterates 4 STARS (accumulate)

Analyst: Yogeesh Wagle

Foot Locker sees 4% to 6% same-store sales gain and 41 cents to 45 cents January-quarter earnings per share. S&P thinks the apparel retailer has strong growth prospects, based on better vendor terms, supply-chain improvements, a focus on high growth direct-to-consumer business, and penetration in Europe. S&P sees single-digit revenue growth resulting from firmer pricing and a slew of new products. S&P is raising the fiscal 2004 (Jan.) earnings per share estimate to $1.38 from $1.34, and fiscal 2005's to $1.63 from $1.59. S&P's 12-month target price is $28, up from $26, which is 17 times S&P's fiscal 2005 estimate and, in S&P's opinion, a justified premium to peers.

Countrywide Financial (CFC ): Maintains 3 STARS (hold)

Analyst: Erik Eisenstein

Countrywide posted December data showing loan production a bit below S&P's expectations. The company narrowed its 2003 earnings per share guidance to $12.30 to $12.40, from $12 to $13.50, citing the quantification of its mortgage-servicing rights recovery and impairment for the fourth quarter. Countrywide left its 2004 earnings per share guidance at $9 to $12. S&P's 2004 estimate remains $9.22, but it's lowering 2003's estimate to $12.44 and reducing the 12-month target price by $1, to $78. The low price-earnings implied by that target, relative to other financial institutions, already includes S&P's view of Countrywide's high interest-rate sensitivity.

Computer Associates (CA ): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Computer Asscociates said today that it has received a Wells Notice from the Securities and Exchange Commission notifying it that the commission is considering a civil enforcement action against the company for possible violations of federal securities laws stemming from the premature recognition of revenue from software license contracts in fiscal 2000 (Mar.). S&P isn't surprised by the news, since Computer Asscociates has been under investigation by the SEC and the U.S. Attorney's office for over a year. S&P believes the worst news is behind Computer Asscociates, and that the company has significantly improved its corporate governance.

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