S&P Says Buy Anheuser-Busch

Anheuser-Busch (BUD ): Reiterates 5 STARS (buy)

Analyst: Anishka Clarke

SAB Miller pulled its offer for Harbin Brewery, China's fourth largest brewer, leaving Anheuser to acquire the 61% of shares it does not already own, via its offer of $5.58 Hong Kong dollars (72 U.S. cents) per share, conditional on obtaining a stake of at least 50%. The deal values Harbin at $720 million, with a cost to Anheuser of roughly $650 million including the 29% it previously bought at HK$3.70. We see the increased investment in China's large and fast-growing beer market as positive, though we think Anheuser faces the challenge of maintaining competitiveness in a highly fragmented market. Our 12-month target price remains $63.

Cisco (CSCO ): Maintains 5 STARS (buy)

Analyst: Megan Graham-Hackett

On its quarterly conference call, industry researcher Dell Oro Group noted that first-quarter 2004 witnessed a surge in Ethernet switch sales and it sees 2004 Ethernet Switch sales up some 15%. We note Dell Oro's data shows marketshare gains in this market of some 500 basis points by Cisco. While Cisco ceded some share in high-end routers, it gained in the low end, and recently introduced a new high-end router. While we are not changing any estimates for stocks in this group, we note that Dell Oro cited signs that enterprise demand for networking gear is improving.

BJ's Wholesale (BJ ): Reiterates 5 STARS (buy)

Analyst: Joseph Agnese

Total May sales rose 16.5% as comp-store sales grew 12.1%, both significantly above our expectations. Strong growth reflects a 6% increase in store traffic and 4% in the average transaction size. We see positive trends in customer traffic and same-store sales continuing in the July-quarter despite tougher comparisons. Fiscal 2005 (Jan.) results should benefit, in our opinion, from an acceleration of new club openings, improved price management, and increased penetration of private label brands. We are keeping our 36 cents July-quarter EPS estimate, and our 12-month target price of $30 based on p-e analysis.

Walt Disney (DIS ): Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CFA, CPA

At a Jun. 2 investor conference, CEO Michael Eisner was expectedly upbeat on Disney's core media and entertainment assets, as he brushed off questions of a possible future Disney role for former Viacom COO Karmazin. Disney's board has fervently backed Eisner, whose contract is set through 2006. But we see heightened urgency for Disney to wrap up its succession plan. Separately, we are encouraged by the evidently ambitious 2004-05 drama schedule recently unveiled by ABC at the upfront. Still, network competition should intensify, with strong stable of promising new pilots, spin-offs, and returning shows.

Comverse Technology (CMVT ): Maintains 4 STARS (accumulate)

Analyst: Kenneth Leon, CPA

Comverse posted April-quarter profit of 5 cents, vs. a 4-cent loss, before special items, 3 cents better than our estimate and the Street's. Sales rose 9% sequentially, order backlog is $413 million, up 3.3% from the January quarter, and gross margins widened 60 basis points to 59.6%. We estimate 20% sales growth in fiscal 2005 (Jan.) with margins up slightly. Short messaging services, prepaid wireless, and security trends are driving sales, in our opinion. Our 12-month target price remains $21 based on a price-to-sales ratio. With $11 in cash and trading below peers at 3.5 times our fiscal 2005 sales estimate, we would accumulate Comverse.

Aeropostale (ARO ): Reiterates 4 STARS (accumulate)

Analyst: Marie Driscoll, CFA

The retailer reported 27% May same-store sales gain, double our estimate, as units per transaction rose 7% to 9% and the number of transactions rose a mid-teens percentage. Accessories, with a high-40s percent comp-store sales rise, grew to 15% of sales, which bodes well for profits, given the category's superior merchandise margins. We are raising our 12-month target price to $32 from $27, or to 20 times our fiscal 2006 (Jan.) EPS estimate of $1.61. We look for continued sales momentum, and with our view of the young store base and potential for geographic expansion, we continue to see 20% long-term earnings growth.

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