S&P Ups Paccar to 'Buy'

Also: analysts' opinions on FuelCell Energy, Morgan Stanley, Microsoft, Jabil Circuit, and Fortune Brands

Paccar (PCAR ): Upgrading to 5 STARS (buy) from 3 STARS (hold)

Analyst: James Sanders

After attending yesterday's analyst meeting and speaking with management regarding expectations for the upcoming year, we now believe that truck builds will likely increase 25% to 30% in 2004, compared with our previous expectation of 10% to 15%. As a result, we are increasing our 2004 and 2005 EPS estimates to $3.75 and $4.25, respectively, from $3.51 and $3.87. Applying PCAR's 10-year historical p-e of 18 to our new 2004 EPS estimate, and blending with our discounted cash flow (DCF) model, which assumes a long-term growth rate for free cash flow, we are raising our 12-month target price to $65, from $55.

FuelCell Energy (FCEL ): Upgrading to 3 STARS (hold) from 1 STAR (sell)

Analyst: Markos Kaminis

We have become more sanguine on FCEL shares based on our view of the strengthening overall economy as well as industry-specific events. Industry events that should benefit the stock include the passing of a proposed energy bill as well as progress with partner Caterpillar (CAT ). The company has a solid cash store and well-controlled burn rate, in our view. We are raising our target price to $14, from $8, as we believe FCEL can maintain a premium to our DCF-based valuation. The shares trade at a multiple to sales within the range of its alternative energy peers.

Morgan Stanley (MWD ): Reiterate 4 STARS (accumulate)

Analyst: Robert Hansen, CFA

February-quarter EPS of $1.11, vs. 82 cents a year ago, beat our 98 cents estimate, driven by growth in sales and trading, investment banking, commissions, and asset management revenue. Sales and trading rebounded sharply from the November quarter, driven by fixed income. We see higher profits in credit services in fiscal year 2004 (November) on improved credit quality. We are raising our fiscal 2004 EPS estimate to $4.40 from $4.15, and our 12-month target price to $70 from $65, or 16 times our fiscal 2004 EPS estimate. We would accumulate MWD given our view of its attractive valuation, prudent expense growth, and improved investment banking pipeline.

Microsoft (MSFT ): Reiterate 5 STARS (buy)

Analyst: Jonathan Rudy, CFA and Richard Stice, CFA

Various news agencies are reporting that settlement talks between Microsoft and the European Union have failed, and as a result, the EU's Competition Commissioner plans to propose a formal ruling against the company. Microsoft has previously said that it would appeal any negative decision. Although the news adds an element of uncertainty, we believe company fundamentals remain strong. This includes an increasingly diversified revenue stream, over $52 billion in cash and short-term investments, and no debt. Our 12-month target price, based on discounted cash flow analysis, is $35.

Jabil Circuit (JBL ): Reiterate 4 STARS (accumulate)

Analyst: Richard Stice, CFA

Jabil posted February-quarter EPS, before acquisition, amortization and restructuring charges, of 24 cents, vs. 16 cents, 2 cents above our estimate. GAAP EPS was 19 cents, vs. 5 cents. Revenue increased 30%, led by networking and telecom segments. Jabil characterizes overall technology sector growth as slow but steady, and raised its fiscal year 2004 (August) revenue and EPS outlook. We are increasing our fiscal year 2004 EPS estimate by 4 cents, to $1.02, and see fiscal year 2005 at $1.27. We believe Jabil's market position, operating leverage, and valuation remain attractive. Our 12-month target price is $35.

Fortune Brands (FO ): Reiterate 5 STARS (buy)

Analyst: Howard Choe

Fortune Brands says first-quarter EPS is likely to exceed Street estimates, citing strong, broad-based demand for its products, continued benefits of supply-chain efficiencies and favorable foreign exchange. We are increasing our first-quarter EPS estimate to 82 cents, from 79 cents, and our full year 2004 EPS estimate to $4.35, from $4.32. We are raising our 12-month target price to $90, from $87, based on raised expectations and a slightly higher p-e. We would purchase FO shares based on our view of a strong, diversified business portfolio, ample free cash flow, solid execution, and attractive valuation.