S&P Raises CSK Auto to 'Buy'

Also: analysts' opinions on Bear Stearns, KB Home, FedEx, and United Technologies

CSK Auto (CAO ): Upgrading to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Yogeesh Wagle

We think CSK Auto will continue industry-leading same-store sales growth in fiscal year 2005 (ending January) with its category management, new products, and customer service focus. We expect cost control and greater economies of scale to drive a 70-80 basis-point operating margin gain, and are raising our fiscal year 2005 EPS estimate by 4 cents, to $1.56. With higher free cash flow expected from recent debt restructuring, our discounted cash flow (DCF) analysis, which assumes 3% industry growth and modest marketshare gains by CAO, yields a $24 to $26 intrinsic value. Our 12-month target price, raised $2 today to $25, is 16 times our fiscal 2005 estimate.

Bear Stearns (BSC ): Reiterate 5 STARS (buy)

Analyst: Robert Hansen, CFA

February-quarter EPS of $2.57, vs. $2.00 a year ago, beat our $1.85 estimate, driven by ongoing strength in the fixed income segment as mortgage and credit revenues declined only slightly from their peaks. We expect revenue growth in investment banking, private client services, and global clearing services to offset a decline we see in fixed income in fiscal year 2004 (November). We are raising our fiscal 2004 EPS estimate to $9.00, from $7.50, and our 12-month target price to $120, from $100, or about 13 times our fiscal 2004 estimate. We think Bear Stearn's fixed income revenue is more sustainable and balanced than most expect and would buy the shares.

KB Home (KBH ): Maintain 4 STARS (accumulate)

Analyst: Michael Jaffe

February-quarter EPS of $1.75, vs. $1.25 a year ago, is well above our forecast, boosted by 18% more home closings, 7% higher prices, and wider operating margins. With unit orders up 23%, backlog rose 40% (25% in units) to $3.7 billion. We are raising our fiscal year 2004 (November) EPS estimate to $10.30 from $9.75, and see $11.00 in fiscal year 2005. At 8 times our fiscal 2004 estimate, KBH is priced a bit below its peers. We think its first-time buyer focus makes KBH more susceptible to any rise in mortgage rates and should keep the p-e below peers. But, given our view of low rates thru 2006, we see the p-e expanding to 9.5 times. Our target price is $98.

Stanley Works (SWK ): Upgrading to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Amrit Tewary

Stanley Works reports that it is seeing favorable sales volume in virtually all of its businesses, and raises first-quarter EPS guidance to 63 cents to 67 cents, from 49 cents to 51 cents. It now projects first-quarter organic sales to rise by a low to mid-teens percentage, above its prior guidance of a 4% to 6% rise. We are increasing our first-quarter EPS estimate to 65 cents from 52 cents, full 2004's to $2.81 from $2.62, and 2005's to $3.05 from $2.95. We are raising our target price to $45, from $42. This is based on our historical p-e model and assumes a target p-e of 16 times our new 2004 EPS estimate. We see above-average appreciation potential for SWK.

FedEx (FDX ): Reiterate 5 STARS (buy)

Analyst: James Corridore

FDX posts February-quarter operating EPS of 71 cents, vs. 49 cents a year ago, beating our 68 cents estimate. Both revenue and margins exceeded our expectations, aided by stronger volumes than expected, an improved business mix, and good traction on a cost-cut program. FDX gives fiscal year 2004 (May) EPS guidance of $3.35 to $3.45, and we are raising our fiscal 2004 and fiscal 2005 estimates to $3.45 and $3.95, from $3.35 and $3.85. Valuing the stock at 25 times our fiscal 2005 EPS estimate, we are raising our 12-month target price to $99, from $95. This would keep FDX in line with its historical p-e range while still slightly below peers.

United Technologies (UTX ): Reiterate 3 STARS (hold)

Analyst: Robert Friedman, CPA

European antitrust regulators are investigating allegations that UTX's Otis Elevator operations may have engaged in price-fixing. Otis is major contributor to UTX's performance, accounting for about 25% of revenues, 30% of EBIT, and generating respectable 17% EBIT margins. But, we think it is much too early to assess the merits of the allegations. Even if allegations prove to be true, we think this would only impact earnings short term. Given our anticipation of strong performance in UTX's other 4 segments, we remain confident in our 8.5% long-term free cash growth forecast.

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