S&P Says Buy IBM

Also: analysts' opinions on E*Trade and Forward Air

IBM Corp. (IBM ): Reiterates 5 STARS (buy)

Analyst: Megan Graham-Hackett

At an analyst meeting, IBM says the IT industry could grow to a $1.7 trillion market from $1.2 trillion now, based on opportunities to apply technology more deeply into companies' business models. The company reiterates that IT demand is improving and that it is pleased with its product portfolio amid new demand trends. We agree, but are making no changes to our 2004 estimate of $4.88, or our S&P Core earnings per share estimate of $2.59 reflecting our estimate of pension and stock option expenses. IBM is trading below our 12-month target price of $131 based on our discounted cash-flow and price-sales analyses.

E*Trade Financial (ET ): Maintains 5 STARS (buy)

Analyst: Robert Hansen, CFA

E*Trade reports total daily average revenue trades of 158,638 during April, up 12% from March and above our estimate, though we think May is weaker. Client assets in investing accounts declined 5% to $71.4 billion, hurt by a 3.7% Nasdaq decline in April. We are impressed by 5% growth in margin debt to $2.2 billion. We expect strong second-quarter loan originations, given the rebound in the mortgage pipeline to $900 million in the first quarter. We are maintaining our 2004 and 2005 earnings per share estimates of 85 cents and 95 cents. Our target price remains $18, which is 21 times our 2004 earnings per share estimate. We continue to recommend the purchase of the shares, based on improving fundamentals.

Forward Air (FWRD ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: James Corridore

Following a decline in the stock price, we find the shares attractive. Forward is trading at 22 times our 2004 earnings per share estimate of $1.39; our $37 12-month target price values the stock at 27 times our 2004 estimate and 24 times our 2005 earnings per share estimate of $1.55. Our target price represents the potential for 18% appreciation, which, in our opinion, would outperform the S&P SmallCap 600 over the same time period. Given our view of no long-term debt, good cash generating ability, and strong return on assets and equity relative to other transportation companies, we think the shares deserve a premium to peers and the S&P 600.