S&P Says Buy Microsoft

Also: analysts' opinions on Amgen and Martha Stewart Living

Microsoft (MSFT ): Maintains 5 STARS (buy)

Analyst: Jonathan Rudy

The European Commission decided Microsoft broke anti-trust laws and assessed a $612 million fine. It also says the company must provide a version of Windows without Windows Media Player within 90 days, and release complete and accurate information to server market rivals within 120 days. Microsoft has said it will appeal. S&P believes the ruling will not significantly impact Microsoft's ongoing operations in Europe, and that it will take a number of years to bring closure to this process. Microsoft's cash and short-term investments total $52 billion, and S&P would buy its shares at a discount to S&P's 12-month target price of $35.

Martha Stewart Living (MSO ): Initiates with 3 STARS (hold)

Analyst: Mark Basham

S&P thinks current efforts to control costs, along with a solid balance sheet, will enable Martha Stewart Living to weather this period of negative publicity surrounding Martha Stewart's trial and conviction. But, the need to evolve and extend the primary "Martha Stewart" brand and to create new "how-to" brands remains a long-term challenge, in S&P's view, existing even prior to this difficult period. S&P sees a loss per share of 40 cents in 2004, but expects a return to positive cash flow in 2005, with a modest loss of 3 cents. Based on S&P's discounted cash-flow analysis and peer comparisons, S&P's 12-month target price is $11.

Amgen (AMGN ): Maintains 4 STARS (accumulate)

Analyst: Frank DiLorenzo, CFA

With Amgen down 5% thus far in 2004, S&P continues to find the shares attractive. Evaluating its pipeline, S&P believes that AMG 162 for bone disorders (S&P assumes an FDA filing by 2007), and AMG 114 (a second-generation version of Aranesp) for anemia have billion-dollar sales potential, if successfully developed. S&P expects Amgen to file on Palifermin for mucositis by midyear, and sees peak annual sales above $500 million. With a p-e-to-growth ratio of 1.0, based on S&P's 2005 earnings per share estimate of $2.84, the shares are at a discount to peers and the broader market. S&P's 12-month target price is $75.

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