S&P Keeps Buy on Best Buy

Also: analysts' opinions on Lehman Brothers, Fannie Mae, Nordstrom, and more

Best Buy (BBY ): Reiterate 5 STARS (buy)

Analyst: Amrit Tewary

Ahead of Best Buy's May-quarter earnings release, we see earnings per share of 33 cents, $2.93 for full fiscal year 2005 (ending February), and $3.51 for fiscal year 2006. We recommend purchasing the shares, based on our view of the company's above-average growth prospects and market leadership position. We think its Reward Zone customer loyalty program will continue to drive customer traffic at stores. Also, we believe Best Buy's "customer centricity" initiative should enable it to effectively target its most profitable customers. Our 12-month target price remains $67, based on our historical p-e model.

Lehman Brothers (LEH ): Reiterate 5 STARS (buy)

Analyst: Robert Hansen, CFA

May-quarter EPS of $2.01, vs. $1.67 a year ago, easily beat our $1.65 estimate, driven by strength in investment banking and client services, as well as a lower effective tax rate. We expect strong growth in Lehman's asset management, prime brokerage, and international businesses in fiscal year 2004 (November) to offset weaker mortgage trading and securitization revenues. We are raising our fiscal year 2004 EPS estimate to $7.80, from $7.25, and establishing a fiscal year 2005 estimate of $8.00. Our 12-month target price stays at $115, about 14 times our fiscal 2005 EPS estimate. We think Lehman enjoys a competitive advantage and would buy its shares.

Fannie Mae (FNM ): Keep 3 STARS (hold)

Analyst: Erik Eisenstein

For the eighth consecutive month, Fannie Mae's mortgage portfolio contracted in May. Based primarily on the contraction, which was a bit wider than we had expected, we are lowering our 2004 and 2005 EPS estimates to $8.44 and $8.98, from $8.53 and $9.13, respectively. Still, we think May results are due to the lagging effects of refinancing application activity in the first quarter. We see portfolio growth in June and for the remainder of 2004 and 2005. We are leaving our 12-month target price at $79, reflecting our view of a historically low, but fair, in our view, p-e off our 2005 EPS estimate.

Nordstrom (JWN ): Downgrading to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Jason Asaeda

With the shares up 21% year-to-date, vs. the S&P 500's 2% gain, and approaching our 12-month target price of $44, we think investors have amply rewarded Nordstrom for its strong April-quarter results and favorable sales and earnings prospects for the rest of fiscal year 2005 (ending January). While same-store sales are tracking modestly higher than expected early into the July quarter, reflecting a 9.4% gain in May vs. our 8.5% estimate, we are maintaining our full-year EPS estimate of $2.44, reflecting what we view as already aggressive assumptions of 7% sales growth and 180 basis points operating margin improvement.

Motorola (MOT ): Reiterate 5 STARS (buy)

Analyst: Kenneth Leon, CPA

At an investor meeting, CEO Ed Zander says Nokia's (NOK ) new handsets, announced yesterday, do not have half the features of Motorola's latest clamshell-style handsets for low- and mid-end market segments. MP3 capability for music is one feature offered today, while Nokia plans to launch this feature later in 2004. In its mid-July second-quarter report, we expect Motorola to meet or exceed our 18 cents estimate, which is 2 cents above the Street's forecast. We see the planned IPO of its semiconductor unit as a plus, supporting our 12-month target price of $25, which is based on sum-of-the-parts analysis.

Boeing (BA ): Keep 3 STARS (hold)

Analyst: Robert Friedman, CPA

Although the commercial and military aerospace giant got a boost from winning a $3.9 billion multi-year contract to build modified 737 submarine-hunting Navy spy planes, we do not see a need to change our valuation assumptions. Although we believe Boeing may be able to post 10%-plus EBIT (earnings before interest and taxes) ratio in the out-years of this contract, we nevertheless believe this win may only make a modest contribution to Boeing's bottom line, given the company's $50 billion-plus annual revenue base. Our discounted cash flow-based 12-month target price remains $50, near current price levels.

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