S&P Upgrades Wal-Mart to Accumulate

Wal-Mart (WMT ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Jason Asaeda

Wal-Mart, the world's largest retailer, posted January-quarter operating earnings per share of 63 cents, vs. 57 cents, in line with S&P's estimate. As Wal-Mart had guided, a change in Germany's tax law impacted earnings per share by 3 cents. The company reported clean apparel inventories, and S&P liked CEO Lee Scott's positive outlook for the economy and consumer spending. Given S&P's view of more favorable sales trends and likely gross margin expansion from an improved product mix and global sourcing, S&P is increasing the fiscal 2005 (Jan.) operating earnings per share estimate by 6 cents, to $2.36. S&P also is raising the 12-month target price by $7, to $68, based on S&P's discounted cash-flow analysis.

Intuit (INTU ): Maintains 3 STARS (hold)

Analyst: Scott Kessler

Before acquisition-related charges and one-time items, Intuit posted January-quarter earnings per share of 77 cents, vs. 61 cents, in line with S&P's forecast, with GAAP earnings per share 73 cents, vs. 60 cents. Revenues rose 14%, driven by seasonal strength in TurboTax and Professional Tax, and partly offset by weakness in ageing product QuickBooks. S&P is modestly reducing the revenue growth forecast for the rest of fiscal 2004 (July), and trimming the earnings per share estimate to $1.64, from $1.69. S&P is also lowering the fiscal 2005 earnings per share projection by 6 cents, to $1.96. Based on a discounted cash-flow analysis, S&P is keeping the 12-month target price of $49.

Applied Materials (AMAT ): Maintains 4 STARS (accumulate)

Analyst: Richard Tortoriello

Applied Materials posted January-quarter earnings per share of 12 cents before 7 cents in restructuring charges, vs. breakeven, on a 48% sales rise -- 4 cents ahead of S&P's estimate. Orders rose 32% from the October-quarter, in line with S&P's projection, but the company sees orders up another 30% in the April quarter, above S&P's forecast. S&P believes market share gains in Asia, as well as a strong capacity build-out in Taiwan and Japan, are driving growth. S&P is raising the fiscal 2004 (Oct.) earnings per share estimate by 10 cents, to 60 cents, and fiscal 2005's by 8 cents, to $1.20. S&P believes strong orders provide good visibility for the rest of fiscal 2004. The 12-month target price remains $32.

Panera Bread (PNRA ): Maintains 5 STARS (buy)

Analyst: Dennis Milton

January-quarter earnings per share of 34 cents, vs. 25 cents a year ago, was a penny above S&P's estimate. Revenues increased 30%, year to year, due mainly to expansion. Systemwide same-store sales were flat. Excluding one-time items, the bread retailer's 2003 earnings per share grew to $1.01, from 73 cents. S&P is lowering the 2004 earnings per share estimate by 2 cents, to $1.29, to reflect a change in joint-venture accounting. However, S&P is raising the 12-month target price by $3, to $52, to account for an acceleration in company-owned unit expansion. S&P's discounted cash flow model indicates that, at 34 times S&P's 2004 earnings per share estimate, the shares are undervalued by more than 15%.

Ciena (CIEN ): Maintains 3 STARS (hold)

Analyst: Kenneth Leon, Ari Bensinger

Before special items, the maker of Internet networking gear posted a January-quarter loss per share of 8 cents, vs. a 17 cents loss, on a 6% sales decline, in line with earlier guidance. Aided by large revenue recognition from a key customer, Ciena sees April-quarter sales up 20% sequentially. Separately, expanding its portfolio, Ciena agreed to acquire broadband-access maker Catena Networks and optical transport and switching provider Internet Photonics for about $637 million n stock. S&P estimates the acquisitions, subject to necessary approvals, would dilute common shares by about 20%. At two times the book value, below peers, S&P would hold Ciena.

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