S&P Says Buy ImClone Systems

ImClone Systems (IMCL ): Reiterates 5 STARS (buy)

Analyst: Frank DiLorenzo, CFA

ImClone released Phase III data from a 424-patient study showing that 57% of head and neck cancer patients taking Erbitux plus radiation therapy were alive after three years, compared to 44% of patients on radiation. We think Erbitux could be approved in a head and neck setting by the second half of 2005, and we forecast peak U.S. Erbitux sales of $2.5 billion by 2012. Our model assumes positive head and neck data, as well as a competitive entrant, Abgenix's ABX-EGF, in 2006. We see some upside revenue potential from additional positive data. Based on our net present value analysis, we keep our target price at $99.

Mandalay Resort (MBG ): Downgrades to 3 STARS (hold) from 5 STARS (buy)

Analyst: Thomas Graves, CFA

Mandalay is up sharply after a $68 per share cash offer from MGM Mirage. We look for Mandalay to seek a higher bid than $68 and wouldn't be surprised if MGM ends up hiking its offer to $75. If another bidder emerges, we can see Mandalay potentially fetching up to $80. Consummation would be subject to necessary approvals. We are keeping our 12-month target price for Mandalay at $74, which we doesn't think provides enough prospective upside to advise purchasing shares at the current levels. Last week, Mandalay reported better-than-expected first-quarter results, helped by strength from its Las Vegas properties.

Verizon Communications (VZ ): Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth

Verizon has added 1.1 million net wireless subscribers thus far in the second quarter, and we expect that it is again taking market share. We anticipate the company having continued strength as wireless broadband offerings are launched on a national basis. However, we view Verizon's wireline operations as challenging, and expect that the rules regarding the wholesale rates it and peers must offer to competitors will be appealed to the Supreme Court in the near term. Our 2004 operating EPS estimate of $2.45 is unchanged and our Core S&P EPS estimate is 29% lower, mostly on projected pension adjustments.

McDonald's (MCD ): Reiterates 3 STARS (hold)

Analyst: Dennis Milton, Amrit Tewary

McDonald's posted global May same-store sales growth of 7.4%, on a 7.9% increase in the U.S., a 4.6% rise in Europe, and an 11.1% advance in the Asia/Pacific, Middle East and Africa (APMEA) region. We see these results as mixed; we were expecting 9% to 10% growth in the U.S., 4% to 7% in Europe and 8% to 11% in APMEA. We are maintaining our 2004 EPS estimate of $1.71. At 16 times this estimate, we think the shares are appropriately valued on our view of McDonald's muted long-term growth prospects. Our 12-month target price remains $30, based on a target p-e of 16 times our 2005 EPS estimate of $1.85.

CapitalSource (CSE ): Maintains 3 STARS (hold)

Analyst: Robert Hansen, CFA

We think CSE has benefited from impressive loan growth, a focus on small to midsize companies, and its strong relationships with private-equity partners. However, we see more price competition in 2004 pressuring fees and loan spreads. Although difficult to estimate, we expect charge-offs to increase as the loan portfolio matures. We forecast EPS of 90 cents in 2004 and $1.10 in 2005, aided by loan growth and prepayment fees. Our 12-month target price is $22, or 20 times our 2004 EPS estimate. We would not add to positions, given our view of increasing competition and appropriate valuation.

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