S&P Says Buy Best Buy

Also: analysts' opinions on Wachovia, Emulex, and Big 5 Sporting Goods

Best Buy (BBY ): Reiterates 5 STARS (buy)

Analyst: Amrit Tewary

In its earnings call, Best Buy said the shopping frequency of Reward Zone members is double that of non-members. S&P thinks this supports S&P's view that the customer loyalty program, which has 2.5 million members, has boosted store traffic. Best Buy also detailed plans for its customer-centricity initiative, which S&P thinkswill allow it to better target profitable customer segments in various markets. S&P is raising the May-quarter earnings per share estimate to 33 cents, from 28 cents, and upping the fiscal 2005 (Feb.) estimate to $2.93, from $2.87. S&P's 12-month target price of $67, raised today from $66, is based on S&P's historical price-earnings model.

Wachovia (WB ): Maintains 5 STARS (buy)

Analyst: Evan Momios, CFA

Year-to-date reported results by brokerage firms and recent economic releases have improved S&P's outlook for WB's market-sensitive operations. S&P believes strong fee income growth and good credit quality will offset some weakness in retail banking in 2004. Accordingly, S&P is raising the first-quarter operating earnings per share estimate to 90 cents, from 88 cents, and raising the 2004 estimate to $3.77, from $3.71. S&P also is upping the 2005 estimate to $4.19, from $4.15. S&P is moving the 12-month target price to $60, from $58, or to the mid-point of S&P's discounted cash-flow and p-e intrinsic value estimates.

Emulex (ELX ): Maintains 5 STARS (buy)

Analyst: Richard Stice, CFA

Today's decline in the share price follows a negative pre-announcement by competitor QLogic Corp. But, S&P thinks QLogic's news is company-specific and not indicative of a slowdown in industry demand. Emulex maintains a dominant, nearly 50% share of the host bus adapter market, which S&P sees growing in excess of 20% in 2004. S&P thinks prospects remain bright for Emulex based on S&P's view of an ongoing shift toward networked storage environments, the company's improved execution, and high barriers to entry. S&P's target price is $38, and S&P views today's shortfall as an enhanced buying opportunity.

Big 5 Sporting Goods (BGFV ): Initates with 4 STARS (accumulate)

Analyst: Mark Basham

This sporting-goods retailer operates nearly 300 stores in 10 Western states, selling a broad variety of apparel, footwear, and equipment at competitive prices in convenient neighborhood locations. S&P thinks the fast-rising population in the company's markets, firmer pricing after several years of an industry-wide deflationary trend, and rising discretionary consumer income will lead to high single-digit revenue gains. S&P estimates Big 5 will earn $1.46 in 2004 after 4 cents in one-time expense. S&P's target price is $29, based on a discounted cash-flow model.

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