S&P Says Accumulate CVS Corp.

CVS Corp. (CVS ): Maintains 4 STARS (accumulate)

Analyst: Joseph Agnese

CVS acquired 1,260 Eckerd drugstores from J.C. Penney for $2.2 billion cash. S&P thinks the acquisition fits well with CVS's strategy of adding stores in faster growing markets. The company expects integration costs to result in a 12 cents to 15 cents dilution to 2004 earnings per share, with synergies adding 15 cents to 20 cents to 2005 earnings per share. S&P is cutting the 2004 earnings per share estimate by 14 cents, to $2.08, and sees 2005 estimates at $2.60. S&P is raising the 12-month target price by $2, to $44, based on S&P's discounted cash-flow and price-earnings analyses. Despite expected synergies, S&P's optimism is muted, which is somewhat due to higher risks to turn around the Eckerd stores.

Mandalay Resort (MBG ): Maintains 4 STARS (accumulate)

Analyst: Thomas Graves, CFA

The stock is up today after the company provided favorable first-quarter earnings per share guidance. S&P is increasing the fiscal 2005 (Jan.) earnings per share estimate to $3.35, from $3.00, reflecting recent and expected strength from the Las Vegas market. S&P is raising the 12-month target price to $70, from $64, based on the expectation that the shares will trade at a p-e of 21, which is calculated on S&P's calendar year 2004 earnings per share estimates, and is similar to what S&P expects for both the S&P 500 and S&P 400 indices, as well as a group of industry peers. Also, Mandalay's stock has an indicated dividend yield of about 1.8%.

Dominion Resources (D ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Craig Shere, CFA

Based on S&P's updated models, S&P is lowering the 2004 earnings per share estimate to $4.95, from $5.00, and is initiating the 2005 estimate at $5.15. Dominion's 2004 and 2005 p-e multiples trade about in line with peer averages. The shares have trended somewhat higher since late 2003, and the stock now trades at a slight premium to peers, based on price-to-book and price-to-trailing-operating-cash flow multiples. S&P sees the company's long-term earnings per share growth potential around 5%, in line with its utility peers. S&P would hold, but not add to positions in the shares, which have a current 4% dividend yield.

Nortel Networks (NT ): Maintains 3 STARS (hold)

Analyst: Kenneth Leon, Ari Bensinger

The Securities & Exchange Commission has issued a formal order of investigation in connection with Nortel's financial results restatements. This follows last month's placement of two top financial executives on leave, after the company announced that it would likely need to further revise results for one or more earlier periods. Nortel says it's fully cooperating with the SEC and is independently reviewing the matter through its audit committee. Despite an improved telecom capital spending environment, S&P would not add to positions, given the risk of possible restatements.

Boeing (BA ): Maintains 3 STARS (hold)

Analyst: Robert Friedman, CPA

S&P isn't surprised by reports that the Pentagon will reinstate Boeing as an eligible bidder for military rocket contracts. In 2003, the company was barred from bidding on rocket contracts after it was found that several former employees had allegedly illegally obtained proprietary information from its big rocket competitor Lockheed Martin. S&P believes the Pentagon had little choice but to reinstate Boeing, as there are only two U.S. rocket makers. While Boeing is trading at a discount to S&P's target price of $50, in S&P's view, the discount is not wide enough to merit an upgrade.

Oxford Health (OHP ): Maintains 5 STARS (buy)

Analysts: Robert Gold, Phillip Seligman

According to today's Wall Street Journal, WellChoice is in advanced negotiations to purchase Oxford Health in an all-stock transaction valuing Oxford Health at an approximate 25% premium to the current quote. This potential deal makes strategic sense to S&P amid heightening competition from United Health and Aetna in the New York metropolitan region. S&P thinks the premium price is justified by Oxford Health's brand name and competitive strengths. However, S&P wouldn't be surprised to see rival bids emerge due to potential for Federal Trade Commission FTC challenges to a WellChoice/Oxford combination.

First Data (FDC ): Maintains 4 STARS (accumulate)

Analyst: Scott Kessler

Late Friday, First Data announced that, on April 1, it experienced a temporary computer hardware problem that affected MasterCard and Visa transactions at Wal-Mart. In some cases, this problem resulted in triplicate postings to consumer credit and debit card accounts. On April 2, First Data processed corrections to the involved accounts and opened a toll-free hotline to assist customers. S&P doesn't think this mishap will materially affect the company and believes that any related pullback would be an enhanced buying opportunity. S&P's 12-month target price remains $51.

Certegy (CEY ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Scott Kessler

Although Certegy trades on par with p-e ratios of certain components of the S&P 1500 Data Processing & Outsourced Services Sub-Industry, its ratio of p-e-to-growth is well above those of peers. S&P expects revenue growth of only 7% in 2004, and 8% in 2005. After the stock rose 8% just last week, S&P believes its shares more than adequately reflect favorable consumer sentiment and spending indications. S&P also thinks Friday's news of the discontinuation of its 7-Eleven Vcom partnership is a modest negative. Based on relative analysis, S&P is trimming the 12-month target price by $1, to $33.

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