S&P Says Accumulate Martek Biosciences
Martek Biosciences (MATK ): Maintains 4 STARS (accumulate)
Analyst: Markos Kaminis
We believe Martek's supplier problem will impact fiscal third quarter and fourth quarter cash flows more than we had forecasted, but that capacity should be in place to meet demand in fiscal 2005 (Oct.). We are reducing our fiscal 2004 EPS estimate to 77 cents, from $1.03, and fiscal 2005's to $2.83 from $2.87. Within our discounted cash flow model, we find intrinsic value benefiting more from nearing larger cash flows than being hurt by recent weakness. Based largely on our discounted cash flow model, we are raising our 12-month target price to $77 from $75. We continue to find these high-beta shares attractive.
Orient Express (OEH ): Initiates with 3 STARS (hold)
Analyst: William Mack, CFA
We see 2004 EPS for this luxury hotel owner and operator rising almost 15% to 71 cents from 62 cents, before a gain on the sale of an asset in the prior year. We look for 13% to 15% higher revenue at comparable owned units in 2004 to boost EBITDA by more than 15% to about $80 million. Our blended valuation approach, which relies mostly on enterprise value-to-EBITDA, applies an enterprise value multiple of 12.5, in line with past averages, to this cash flow forecast. With the stock recently trading modestly below our 12-month target price of $16, we think the shares are about fully valued.
Heartland Express (HTLD ): Maintains 3 STARS (hold)
Analyst: Andrew West, CFA
We are adjusting our models to reflect our view of the higher valuations the market has assigned to Heartland and the truckload sector. We think investors are becoming increasingly confident of projections of multiyear revenue growth and stable-to-higher profit margins for the company. We still expect annualized six-year profit and free cash flow growth of about 6%. Based on a blend of our discounted cash flow model, assuming a 9% cost of capital, and our relative value model, we are raising our 12-month target price to $26 from $24.
Nokia (NOK ): Reiterates 4 STARS (accumulate)
Analyst: Ari Bensinger
At its annual connection conference, Nokia unveiled its latest five product portfolio additions, including three clamshell phones. After reevaluating its product road map, the company now expects to launch a total of 35 new handsets during 2004, down from the prior target of 40. Given the current gaps in its product portfolio, we are disappointed with the lower product launches. Still, we think that Nokia will be able to gain handset market share during the second half of 2004 through aggressive discounting tactics. At 13 times our $1.08 2005 EPS estimate, well below peers, we view the shares as attractive.
MGM Mirage (MGG ): Maintains 3 STARS (hold)
Analyst: Thomas Graves, CFA
We expect Mandalay Resort Group directors to approve a $71 per share cash acquisition offer from MGM. We still don't expect another bidder for Mandalay to emerge. To gain regulatory approval, we expect that a deal go-ahead would likely depend on MGM divesting its equity interests in a Detroit casino and possibly some Vegas assets. With the acquisition expected to be EPS-accretive for MGM, we are raising our 2005 EPS estimate for MGM to $2.60 from $2.50. Also, we are raising our 12-month target price for MGM shares to $50 from $48.
Mandalay Resort (MBG ): Maintains 3 STARS (hold)
Analyst: Thomas Graves, CFA
We expect Mandalay directors to approve the $71 cash per share acquisition bid from MGM. The deal is also subject to other necessary approvals. We're disappointed that the managements of the two companies did not agree on a higher price for Mandalay. We're lowering our 12-month target price for Mandalay shares to $71 from $76. With a proposed deal price only 4% above Thursday's closing price, we don't look for enough upside to Mandalay shares to advise new stock purchases.
Sempra Energy (SRE ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)
Analyst: Craig Shere, CFA
Sempra's shares have risen almost 15% year to date, as the company posted better-than-expected first-quarter EPS, agreed to sell its U.K. retail energy marketing unit, announced the acquisition of a 50% interest in Texas wholesale coal-fired generation, and issued longer-term EPS guidance above Street expectations. The shares are now at a 7% discount to our 12-month target price of $37, which is based on an 2005 p-e a bit under more regulated peers and appreciation in line with 5%+ long-term EPS growth. Including dividends, our projected total return over the next year is about 10%.
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