S&P Says Still Buy Intel

Intel (INTC ): Maintains 5 STARS (buy)

Analyst: Thomas Smith, CFA

Intel narrowed the guided range for March-quarter revenue to $8.0 billion to $8.2 billion, from $7.9 billion to $8.5 billion. More importantly, in S&P's view, Intel kept 60% as the midpoint of its expected range for gross margin, despite the sales slip, which S&P believes reflects minor inventory congestion in Asia that is fading. S&P is maintaining the earnings per share estimate of $1.30 for 2004 and $1.70 for 2005. S&P is lowering the 12-month target price to $42, from $45, reflecting more conservative valuation assumptions. Applying the present $5.26 tangible book value to the average annual historical high price-to-book value of 8 indicates price potential to $42.

Flextronics International (FLEX ): Maintains 5 STARS (buy)

Analyst: Richard Stice, CFA

In a mid-quarter update, Flextronics says business conditions remain steady, and reiterated its March-quarter revenue and earnings per share guidance. The company sees continued strength in the consumer business and an improving market for telecom. In addition, Flextronics is working on several new design manufacturing related programs, which S&P sees boosting margin performance. S&P continues to recommend investors purchase the shares, given S&P's view of an advantageous industry position, an improving business mix, and with shares trading at discount to peers on a discounted cash-flow and price-to-sales basis. S&P's 12-month target price is $24.

McDonald's (MCD ): Maintains 3 STARS (hold)

Analyst: Dennis Milton

The world's largest burger chain's February systemwide sales jumped 23% from a year ago, mainly on same-store sales gains and a weaker U.S. dollar. Same-store sales soared 20.1% in the U.S., 7.7% in Europe, and 6.2% in the Asia-Pacific/Middle East/Africa region. Year-ago sales were limited by severe weather and significant price discounting. S&P is raising the 2004 earnings per share estimate by 3 cents, to $1.71, and S&P's 12-month target price by $2, to $30. At 17 times S&P's estimate, in line with peers, S&P believes McDonald's is appropriately valued, given the company's soft long-term growth prospects.

WebEx Communications (WEBX ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Mark Basham

S&P is raising the 12-month target price to $30, from $27, but with the share price less than 5% below that level, S&P sees WebEx as a market performer. S&P's target price increase reflects somewhat higher long-term growth assumptions. WebEx has had recent success in augmenting the 11% of fourth quarter revenues that were through the indirect channel, which is part of its key 2004 strategy to expand distribution to thwart growing competition. WebEx was a strong performer during February, after posting fourth-quarter earnings per share of 21 cents early in the month, well above S&P's 17 cents estimate.

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