S&P Says Hold Pixar

Pixar (PIXR ): Reiterates 3 STARS (hold)

Analyst: Mark Basham

December-quarter earnings per share of $1.44, vs. 31 cents handily tops S&P's $1.04 estimate as more of Finding Nemo foreign theatrical revenues were pulled into fourth-quarter results (instead of the first-quarter of 2004.) Much of Pixar's conference call was on the acrimonious end to its relationship wiht Disney. Pixar thinks it has four suitable other partners, and will begin negotiations in March. With The Incredibles slated for an earlier-than-expected premiere on Nov. 5, S&P is raising the 2004 estimate to $1.50, from $1.25. S&P advises that investors hold Pixar pending a resolution of the new agreement. S&P thinks the current stock price adequately reflects the risks of this digital-animation studio producing just one film per year.

JetBlue Airways (JBLU ): Reiterates 3 STARS (hold); Delta Air Lines (DAL ): Reiterates 2 STARS (avoid)

Analyst: James Corridore

According to The Wall Street Journal, Delta is putting expansion plans for its low-fare Song operation on hold. S&P sees this as good news for JetBlue, which competes head-to-head with Song. S&P thinks the news is also good for other low-cost carriers, showing the difficulty legacy carriers face in competing against them. S&P thinks this is a smart decision by Delta, although it shows that they do not have right operating strategy in place. With high costs and large losses, S&P would avoid Delta shares. JetBlue is growing rapidly, but faces stiff competition from American Airlines, which is hurting margins.

Sovereign Bancorp (SOV ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Erik Eisenstein

Sovereign shares have been weak in the past few weeks, which S&P attributes to the announced agreement to acquire Seacoast Financial (pending necessary approvals) as well as disappointment that Sovereign itself has not been an acquisition target. S&P thinks that the share price weakness is an overreaction, given the bank's solid track record for integrating acquisitions. S&P is leaving the 12-month target price at $25. That target reflects a price-earnings premium to other regional banks based on S&P's 2004 earnings per share estimate of $1.65, which is justified by relatively strong earnings per share growth prospects.

OM Group (OMG ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Stewart Glickman

S&P thinks that despite surges in nickel and cobalt prices in 2003, fundamentals for these metals remain strong and, in S&P's view, are likely to see additional gains. S&P's more positive outlook is based on expectations of rising metals demand, especially from China, which will likely exceed available world supplies. S&P is lifting the 2004 earnings per share estimate to $1.57, from $1.37. The specialty chemicals maker's shares are trading at 18 times that estimate, below its peers' p-e of 20, and also appear undervalued based on S&P's discounted cash-flow model. S&P is raising the 12-month target price to $33 from $27, and would add to positions.

Gap (GPS ): Reiterates 4 STARS (accumulate)

Analyst: Marie Driscoll

Gap reported January comp-store sales up 3%, vs. a 16% gain in January 2003 sales -- above S&P's estimate of a 2% gain. Lean inventories supported improved regular price selling. Gap Domestic's 1% positive store traffic and higher average unit retail drove 6% higher comp-store sales for the division. Banana Republic's comp-store sales fell 1% on December sales, but S&P sees a new spring lines as promising. The company will exit Germany and continues to fine-tune its operating processes while improving design and merchandising. S&P expect further gains in fiscal 2005 (Jan.). S&P's 12-month target price is $27.

Anheuser-Busch (BUD ): Reiterates 5 STARS (buy)

Analyst: Anishka Clarke

Fourth-quarter earnings per share of 36 cents, vs. 31 cents is in line with S&P's estimate. The beer manufacturer's sales rose 4% on 2.8% higher net revenue per barrel, reflecting shifts in product mix and pricing, as well as international volume growth driven by sales in China. S&P is encouraged by 1.7% higher sales to retailers, vs. an 0.5% rise to wholesalers. S&P sees 2004 sales momentum continuing on higher global volumes and net revenue per barrel, despite stronger premium-and-above competition. S&P is a bit dubious that a favorable pricing environment will continue over the medium term. Shares trade below S&P's target price of $63, based on S&P's $2.79 2004 estimate.

Medtronic (MDT ): Maintains 5 STARS (buy)

Analyst: Robert Gold

Medtronic sees fiscal 2004 (Apr.) third-quarter revenues of $2.195 billion, a bit shy of S&P's $2.226 billion forecast, due to seasonal factors and more normalized defibrillator growth. S&P notes that implantable cardioverter-defibillator (ICD) sales in the year-ago quarter surged 60%, making for tough comparisons. In S&P's view, demographics and compelling clinical outcomes will support sustained ICD market growth in the 20% area. S&P see earnings per share impact from revenue adjustment of about 2 cents, but feels the medical-device maker has ample cost opportunities to generate earnings per share of 40 cents, vs. S&P's previous 41 cents estimate. S&P is keeping full-year estimates at $1.63 per share pending guidance on a Feb. 11 earnings call.

Abercrombie & Fitch (ANF ): Maintains 4 STARS (accumulate)

Analyst: Marie Driscoll

Abercrombie reported a 2% January same-store sales gain, comprised of a 9% gain at Hollister, 1% lower same-store sales at A&F stores, and a 1% gain at its kid stores. S&P thinks this is good news, especially the 9% at Hollister, considering that January is a very low volume month. The specialty retailer expects to beat the previous fourth-quarter guidance of 91 cents to 93 cents due to strong margins and expense control. S&P is raising the fourth-quarter earnings per share estimate to 95 cents, from 92 cents, and is raising the fiscal 2004 (Jan.) estimate to $2.06, from $2.03. S&P also is upping the fiscal 2005 estimate to $2.30, from $2.26. S&P's 12-month target price remains $30.

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