S&P Upgrades Pfizer to Buy

Pfizer (PFE ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Herman Saftlas

S&P's upgrade of Pfizer is based on improved fundamentals and valuation. S&P believes recent weakness is due to disappointing prescription-drug growth in the new Inspra heart medicine. However, S&P thinks this should be more than offset by increased sales of cholesterol treatment Lipitor, with 2004 sales estimated to rise by 10%, to $10.2 billion, driven by new efficacy studies. Pfizer's pipeline includes some 15 potential blockbusters in late-stage development. S&P finds the shares attractively valued at a price-earnings of 16.7, (based on S&P's 2004 earnings per share estimate of $2.13), vs. the p-e of 20 for the big-pharma market, and at a p-e-to-growth of 1.2, vs. 2.4 for peers.

Target (TGT ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Jason Asaeda

Target is reviewing strategic options for department-store chains Mervyn's and Marshall Field's, including selling both. S&P views this review positively, given the slow turnaround at these divisions. Assuming the sale of both department-store segments, and the use of proceeds for debt repayment and share repurchases, S&P projects fiscal 2005 (Jan.) earnings per share of $2.10, based on 10% sales growth. At 21 times this estimate, below levels of growth-discounter peers, S&P finds the shares attractive. S&P is raising the 12-month target price by $10, to $53, applying a peer average p-e of 25 to S&P's fiscal 2005 earnings per share estimate.

Urban Outfitters (URBN ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Marie Driscoll, CFA

Beating S&P's January-quarter earnings per share estimate by 5 cents, the specialty retailer posted 45 cents, vs. 21 cents. Urban raised the three-year operating margin goal to 17%, after a 400-basis-point margin expansion to 14.7% in fiscal 2004 (Jan.). S&P sees revenue growth and margin opportunities over the next few years. S&P is raising the fiscal 2005 earnings per share estimate to $1.57, from $1.50, and setting a fiscal 2006 estimate at $2.05. S&P believes over the next 12 months, the market will accord Urban shares a 25 p-e multiple, which matches S&P's five-year earnings growth rate estimate. Applying it to S&P's fiscal 2006 estimate, S&P is raising the 12-month target price by $3, to $50.

Halliburton (HAL ): Reiterates 4 STARS (accumulate)

Analyst: James Kartsonas

The oilfield-service provider's shares are down again Thursday, following new reports related to allegations that it overcharged for Iraq-related work. In the last three trading days, Halliburton has lost almost $1.5 billion in market value, mainly due to the continuation of accusations over the company's operations in Iraq. Although the possibility of some kind of formal charges is real, S&P sees the recent stock price reaction as excessive, given that Halliburton's core business remains solid in the current upbeat oilfield industry environment, and with the shares already trading at a discount to peers.

Hospitality Properties (HPT ) and La Quinta (LQI ): Maintains 5 STARS (buy)

Analyst: Raymond Mathis

Despite any impact on the hospitality industry from new terrorist attacks in Europe, S&P remains bullish on these two hotel operators, neither of which owns properties overseas. La Quinta has relied chiefly on domestic leisure travel to post industry-leading growth in revenue per available room, not international travel. Hospitality Properties' structure provides for guaranteed minimum payments from tenants. Also, the recent pullback in its shares has pushed the yield up by more than 6.6%. S&P views these stocks as undervalued and likely to continue outperforming the market.

C.H. Robinson (CHRW ): Initiates coverage with 4 STARS (accumulate)

Analyst: James Corridore

C.H. Robinson is one of the largest providers of third-party truck capacity in the U.S., and offers other logistics services. As a non-asset-based provider of capacity, C.H. Robinson has been able to generate high returns on assets and return on equity relative to its competition. S&P believes that tight trucking capacity and expected increasing shipping volumes should create opportunities for the company to increase market penetration. S&P's 12-month target price of $45 values the stock at 26 times S&P's 2005 earnings per share estimate of $1.72, a premium to peers but in line with C.H. Robinson's historic p-e range.

Quiksilver (ZQK ): Maintains 5 STARS (buy)

Analyst: Marie Driscoll, CFA

Teen retailer Quiksilver posted first-quarter earnings per share of 16 cents, vs. 12 cents, a penny better than S&P's estimate. Revenues grew 33%, and inventories rose 24%. With trailing 12-month revenues above $1 billion, Quiksilver sees total opportunities of $3 billion for sales in Asia/Pacific, the Quiksilver brand, and the Roxy brand. S&P expects continued momentum throughout fiscal 2004 (Oct.), and is increasing the earnings estimate to $1.25 , from $1.20. S&P is also upping the fiscal 2005 estimate to $1.50, from $1.40, and is raising the target price to $25, from $22. This gives shares a p-e of 16, based on the calendar 2005 earnings per share estimate of $1.53. Quiksilver is trading at nearly a 20% discount to its peers, which S&P expects to diminish over the coming 12 months.

Nortel Networks (NT ): Maintains 3 STARS (hold)

Analyst: Kenneth Leon, CPA

Nortel shares are down 12% Thursday after the company's release stating that it will need to delay the SEC filing of its 2003 results. In October, 2003, audit and accounting problems were exposed by the company's audit committee. According to the company, a delay in the 2003 10K report should not put Nortel at risk for $3.6 billion of notes and convertible debt, but the Export Development Canada agency has the right to terminate $300 million in commitments and $450 million in noncommitted support after March. Despite Nortel's improved outlook, S&P wouldn't add to positions with the risk of potential restatements.

American Management Systems (AMSY ): Maintains 3 STARS (hold)

Analyst: Stephanie Crane

CGI Group agreed to acquire American Management shares in a cash tender offer of $858 million, or $19.40 per share, roughly a 25% premium. Concurrently, the U.S. assets of American Management's Defense and Intelligence group will be sold for $415 million to CACI International. The transactions are slated to close by end of May or early June, pending necessary approvals. For American Management, S&P thinks the deal will provide economies of scale, expanding its presence and increasing shareholder value. S&P is raising the target price to $19, which is based on discounted cash-flow analysis, and equates American Management's p-e-to-growth rate with the S&P Smallcap 600.

Gemstar-TV Guide (GMST ): Initiates coverage with 4 STARS (accumulate)

Analyst: William Mack, CFA

With several large deals to distribute programming and content through pay-TV companies recently closed or pending, Gemstar's ability to generate significant free cash is greatly enhanced. In addition, S&P believes the long-term nature of these agreements will considerably reduce any uncertainty as to the market's acceptance of Gemstar's programming technology, and should provide a recurring revenue stream for the foreseeable future. Based on S&P's discounted cash-flow model, the 12-month target price is $9, and S&P would accumulate the shares of this interactive programming provider and publisher.

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