S&P Cuts Wyeth to Hold

Wyeth (WYE ): Downgrades to 3 STARS (hold) from 5 STARS (buy)

Analyst: Herman Saftlas

Wyeth outlined an impressive R&D pipeline at today's analyst meeting, and also reiterated EPS guidance of $2.60 to $2.70 for 2004. However, in light of recent legal setbacks, we now believe the company's diet drug liabilities may be substantially larger than we had expected earlier. Thus, despite a depressed multiple on the company's shares, now 14 times our 2004 EPS estimate of $2.85, we do not see meaningful appreciation until the diet drug issues are resolved. We are lowering our 12-month target price by $8, to $41, based on a blend of our revised forward p-e and discounted cash-flow models.

Walgreen (WAG ): Reiterates 5 STARS (buy)

Analyst: Joseph Agnese

Walgreen posted May sales up 12.8%, slightly below our estimate, on an 8.5% rise at same stores and 9.0% growth in store count. Pharmacy comp-store sales increased 10.5% on 2.9% script volume growth, both slightly below our expectations. Non-pharmacy sales grew 5.3%, ahead of our estimate and above a 3.7% year-ago rise. We are reducing our May-quarter EPS estimate by a penny, to 32 cents, reflecting slightly lower pharmacy sales growth than expected, offset by increased leverage from improved non-pharmacy business. However, our 12-month target price remains $43, based on discounted cash-flow and p-e analyses.

Orbitz (ORBZ ): Initiates with 3 STARS (hold)

Analyst: Scott Kessler

The third-largest online travel agency, Orbitz completed its IPO in December, 2003. We think the company will benefit from an economic recovery and associated increase in travel, a higher percentage of travel transactions online, and market-share gains. Orbitz's p-e and p-e-to-growth ratios are below those of peers. Based on relative and intrinsic analyses, and accounting for a discount due to its short operating history and 68% ownership by its airline founders (which will be able to sell shares beginning June. 14), our 12-month target price on what we consider quite volatile shares is $23.

Xilinx (XLNX ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Thomas Smith, CFA

Xilinx reiterated the June-quarter revenue guidance of 5% to 8% growth from the March-quarter, and we continue to model at 7%. The company guided to the top of the prior guided range for June-quarter gross margin at 63% to 64%. It also sees inventory days flat against the March quarter, which supports our view that a chip industry expansion is still a long way from inventory congestion and the next cyclical downturn. We are raising our fiscal 2005 (Mar.) EPS estimate by a penny to $1.25 (S&P Core EPS of $1.05). However, we are lowering our 12-month target price to $47 from $55, reflecting valuation multiple compression we see for chipmakers.

EBay (EBAY ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Scott Kessler

Ebay shares rose 39% year-to-date through yesterday, and we are taking a more conservative stance. We are raising our 2004 EPS estimate to $1.60 from $1.57 on a modestly better outlook we see for revenues and margins. We are also raising our 12-month target price to $102 from $99, due to slightly higher-than-expected free cash flow growth rates likely in later years. Though we believe the eBay Live user conference June 24-26 could be a positive catalyst, we think valuation considerations, and shares approaching our target, warrant a downgrade. Nonetheless, we continue to like eBay.

Chevron Texaco (CVX ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Tina Vital

As the second largest U.S. oil company and top-five refiner focused on the West and Gulf Coast, we think CVX will benefit from an economic rebound and strong U.S. refining margins. We see oil and gas prices and refining margins remaining near current levels through Labor Day, before moderating on new supplies. We are raising our 2004 EPS estimate to $9.99 from $8.55, and upping the 2005 estimate to $7.92 from $6.68. Based on a blend of valuations (discounted cash flow, peer and transaction multiples), we are raising our target price by $10 to $110, representing an 2005 p-e of 14, in line with peers. Yielding 3.2%, we would buy.

Fairchild Semiconductor (FCS ): Maintains 4 STARS (accumulate)

Analyst: Stephanie Crane

Despite volatile backlog, Fairchild reiterated the second-quarter revenue guidance of 5% sequential growth. Lead times are extending, offering visibility into the third and fourth quarters. The company sees strong end-user demand from consumer electronics, notably power products, where it focuses its strategic shift, adding capacity to its fabs. We see second-quarter revenue of $417 million, up 5% over the first quarter. Our second-quarter EPS estimate remains 18 cents, and our 2004 estimate is 77 cents. We are lowering our 12-month target price to $24 from $32, reflecting a peer-average price-sales ratio of 1.75, but with shares trading at a price-sales ratio of 1.4, we view Fairchild as attractive.

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