S&P Upgrades Mattel to Accumulate

Mattel (MAT ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Amy Glynn, CFA

S&P's upgrade is based on the belief that the toy maker's shares currently offer an attractive valuation. S&P also is optimistic about the rollout of refreshed Barbie concepts, which should help stabilize domestic sales in this core franchise. Mattel continues to be limited by ongoing consolidation in the retail toy industry. However, S&P thinks this is reflected in the current stock price and downside appears limited. S&P is raising the 2004 earnings per share estimate to $1.33 from $1.30, and is keeping the 12-month target price at $22. This represents a potential 21% upside from the current price.

Interstate Bakeries (IBC ): Reiterates 1 STAR (sell)

Analyst: Richard Joy

IBC announcesd that it expects to report a net loss of 6 cents to 10 cents per share (before a 2 cents restructuring charge) for its February quarter ending Mar. 6. S&P was expecting earnings per share of 14 cents. IBC continues to struggle with rising costs and the impact of low-carb diets on its core bread and snack-cake businesses. S&P is reducing the February-quarter earnings per share estimate by 24 cents, to a loss of 10 cents, and is slashing the full fiscal 2004 (May) estimate by 33 cents, to 45 cents earnings per share. Earnings visibility remains extremely poor, in S&P's opinion, and S&P is keeping the 12-month target price at $12.

Nokia (NOK ): Maintains 5 STARS (buy)

Analyst: Ari Bensinger

At today's annual meeting, Nokia outlined its strategy to expand mobile voice communications, drive consumer multimedia, and bring extended mobility to enterprises. The company plans to introduce 40 new phones during 2004, with an emphasis on the high-end market. Given its dominant handset market position, S&P believes Nokia is well positioned to benefit from growing mobile multimedia trends, such as imaging, music, and games. Based on several industry data points, S&P expects Nokia to post strong first-quarter results. Based largely on S&P's discounted cash-flow analysis, the 22-month target price is $26.

Avon Products (AVP ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Howard Choe

Avon raised its guidance for the third quarter and full-year 2004, saying that sales are tracking up a robust 19%, driven mostly by strong demand across all regions, including Latin America, and a 6% foreign-exchange benefit. S&P is impressed by the cosmetic company's strong execution and growth opportunities in emerging markets, especially China. S&P is raising the 2004 earnings per share estimate to $3.21, from $3.14, and is upping the 2005 estimate to $3.65, from $3.54. S&P believes the shares should trade at a premium to its peer-like forward price-earnings of 20. S&P is raising the 12-month target price to $89, from $77, based on assumed forward p-e of 24.

Cablevision (CVC ): Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

After an adverse arbitration ruling on a long dispute with the New York Yankees' YES network, Cablevision will offer YES, along with its own regional sports nets (MSG and Fox Sports), in standard package. It plans a modest 95 cents monthly hike for expanded basic cable. This outcome was a mild surprise. S&P sees earnings downside risk. S&P widened the 2004 loss per share estimate by 10 cents, to $1.00, and cut the target price by $3 to $25, with a view of relatively ample enterprise-value-to-EBITDA ratio of 13. S&P thinks the unsuccessful quest to put YES on a special tier will likely slow the industry push for a la carte sports pricing.

ImClone Systems (IMCL ): Maintains 4 STARS (accumulate)

Analyst: Frank DiLorenzo, CFA

The European Union's Committee for Proprietary Medicinal Products recommended approval of Erbitux. ImClone partner Merck KgaA will market the drug, with ImClone getting a mid-single digit royalty and a $5 million royalty payment on approval. S&P expects an approval and launch by mid 2004, and assumes peak annual EU sales of $639 million by 2012. Based on revisions to milestones and royalties, S&P is raising the 2004 earnings per share estimate to 49 cents, from 37 cents, and is upping 2005's estimate to 90 cents, from 80 cents. On a net present value analysis, assuming peak Erbitux U.S. sales of $1.5 billion by 2012, S&P is raising the target price to $59, from $57.

Weight Watchers (WTW ): Initiates coverage with 4 STARS (accumulate)

Analyst: Howard Choe

While S&P thinks visibility for a rebound in U.S. meeting attendance is limited by the low-carb craze, S&P likes Weight Watchers' long-term prospects, based on growing obesity trends, the company's balanced diet regimen, its high-margin/low-capital business model, and the strong brand. S&P sees stabilized domestic attendance, growth in international markets, and licensing arrangements as near-term catalysts. Weight Watchers' p-e-to-growth of 1.1 is sharply below the 1.7 ratio for S&P's personal-care coverage group. S&P's 12-month target price is $47, and S&P views the shares as undervalued.

Applied Materials (AMAT ): Upgrades to 5 STARS (buy) from 3 STARS (hold)

Analyst: Colin McArdle

Based on S&P's view of a sustainable upturn in semiconductor-equipment demand, supported by upbeat comments from Applied Materials at its analyst meeting, S&P is upgrading its opinion to buy. Low current inventories, along with favorable pricing trends and high end-demand for chips, suggest to S&P that the industry is poised for strong growth through the next two years. S&P sees calendar 2004 earnings per share of 86 cents for this industry leader, with diversified products and a strong Asia presence. S&P's revised $30 12-month target price, up from $25, is based on a peer group multiple of 35 times S&P's calendar 2004 earnings per share estimate.

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