S&P Says Hold Yahoo

Yahoo (YHOO ): Maintains 3 STARS (hold)

Analyst: Scott Kessler

This week, Google has launched offerings including personalized search services, product searches via Froogle, and a free e-mail service called Gmail. S&P thinks these enhancements are aimed squarely at Yahoo, but S&P doesn't expect them to have a material negative impact on the company. Separately, S&P is adjusting its earnings per share forecasts for Yahoo to better reflect the impact of recent acquisitions. S&P is lowering the 2004 estimate to 55 cents, from 60 cents, and cutting the 2005 estimate to 74 cents, from 75 cents. Yahoo is scheduled to report first-quarter results Apr. 7. S&P's 12-month target price remains $51, based on a discounted cash-flow analysis.

Ford (F ): Maintains 3 STARS (hold)

Analyst: Efraim Levy, CFA

March vehicle sales volume for Ford rose 3% from a year earlier. Truck sales, led by double-digit gains for the F-Series, rose 8%, but cars fell 7%. S&P believes the product mix shift aided margins, reflecting a greater proportion of light trucks that are more profitable to Ford than sedans, and greater strength in sales of premium brands such as Lincoln, Jaguar, and Volvo. Land Rover sales, however, dropped. S&P sees industry light vehicle sales volume of 17 million in 2004, up from 16.6 million in 2003. Based on comparative price-earnings ratios, S&P's 12-month target price for Ford remains $15.

Jack in the Box (JBX ): Maintains 3 STARS (hold)

Analyst: Dennis Milton

Shares have risen 10% this morning after the company lifted its earnings per share guidance for the March quarter to 44 cents, from 28 cents, vs. a year-ago's 44 cents. It expects to benefit from same-store sales growth, which it estimates at 7.5%, a favorable shift in the menu mix, and controlled labor costs. S&P is increasing the fiscal 2004 earnings per share (Sep.) estimate by 12 cents, to $2.03. S&P is raising the target price by $2, to $29, to reflect an improved sales outlook. S&P's target price assumes a forward p-e of 14, below industry peers, to reflect existing operating concerns, on S&P's calendar 2004 earnings per share estimate of $2.06.

Bed Bath & Beyond (BBBY ): Maintains 4 STARS (accumulate)

Analyst: Yogeesh Wagle

Bed & Bath's February-quarter earnings per share of 47 cents, vs. 35 cents is 3 cents above S&P's estimate. Sales rose 24% on a better than expected 8.1% same-store sales gain. Operating margin widened 170 basis points. S&P thinks the 2003 acquisition of Christmas Tree Shops should yield buying and distribution synergies in 2004. Planned new store openings are above S&P's prior projections, and S&P is raising the fiscal 2005 (Feb.) estimate to $1.59, from $1.54. With store count just above the halfway mark of its target, S&P thinks Bed & Bath could maintain 20% earnings per share growth over the next three years. In S&P's view, shares have appeal at a below-market p-e-to-growth multiple.

Eastman Kodak (EK ): Maintains 1 STAR (sell)

Analysts: Richard Stice, CFA. Jonathan Rudy, CFA

Dow Jones & Co. announced today that Kodak will be removed from the Dow Jones industrial average as of Apr. 8, despite being a part of the average since 1930. S&P believes that this move reflects a persistent weakness in the company's traditional film market, in addition to operating difficulties that have resulted in integration and restucturing challenges. With the shares trading at a notable premium to the broader S&P 500 on a p-e-to-growth basis, S&P would continue to sell Kodak shares at these price levels.

Agere Systems (AGR.A ): Initiates with 3 STARS (hold)

Analyst: Colin McArdle

This communication-chip maker reported a December-quarter revenue increase of 18%, and a loss of 2 cents on a pro forma basis. GAAP loss was also 2 cents. S&P expects earnings growth to accelerate and gross margins to widen to 45% in fiscal 2004 (Sep.), vs. 32% in fiscal 2003, reflecting more favorable pricing and higher volumes combined with a favorable sales mix shift. Based on customer concentration, debt and other issues, S&P is applying a price-sales multiple of 3.5, which represents a 20% discount to peers, to the fiscal 2004 sales estimate of $2 billion. This results in a 12-month target price of $4.

Guitar Center (GTRC ): Initiates with 5 STARS (buy)

Analyst: Markos Kaminis

Guitar Center is the leading U.S. retailer of musical instruments and professional audio and recording equipment. It also operates American Music, which focuses on sales and rentals to the school band market, and Musician's Friend, the largest U.S. catalog and e-commerce retailer of instruments. S&P forecasts a 14% revenue rise in 2004. S&P estimates 2004 earnings per share at $1.87, and 2005's at $2.31. S&P's first metric, p-e-to-growth, suggests a $51 price target based on the 2005 earnings per share estimate and a 22% three-year growth projection. S&P's second metric, discounted cash flow, suggests an intrinsic value of $53. S&P's 12-month target price is $52.

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