S&P Says Accumulate Priceline
Priceline.com (PCLN ): Maintains 4 STARS (accumulate)
Analyst: Scott Kessler
Priceline pre-announced second-quarter gross margin and EPS that are higher than we expected. We are raising our second-quarter estimates for gross margin to 20.7%, from 20.2%, and for EPS to 30 cents, from 27 cents. The company also said second-quarter revenue growth would be 6% to 9%, vs. the prior guidance of 5%; our forecast remains 9%. We see strong demand for travel services, supported by a June 15 upside preannouncement by Sabre. We think Priceline is doing well in the airline and hotel areas. We are raising our 2004 EPS estimate to $1.04, from 98 cents, and upping our target price to $33, from $31, based on our discounted cash flow and peer analyses.
Nextel Partners (NXTP ): Maintains 5 STARS (buy)
Analyst: Kenneth Leon, CPA
We believe Nextel is less impacted by industry number portability, which increases marketing costs and customer churn, given its strong operating position in the less competitive rural to suburban markets. Today, the company raised its EBITDA estimate to $340 million from $325 million for 2004, in line with our estimate. We expect EBITDA service margins to widen to 26% in 2004 from 19% in 2003. Our 2004 operating EPS estimate of 25 cents is unchanged, and our S&P Core EPS estimate of 16 cents is 36% lower, due to expected stock option expenses. Our target price is $20, based on the stock trading at three times our 2005 sales estimate.
Galyan's (GLYN ): Upgrades to 4 STARS (accumulate) from 2 STARS (avoid); Dick's Sporting (DKS ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Mark Basham
Dick's agreed to acquire Galyan's Trading in a tender offer of $16.75 in cash per Galyan's share, subject to necessary approvals. The offer, plus the assumption of $57 million in debt, values Galyan at $362 million. Dick's anticipates about $20 million in cost savings and better merchandise purchasing terms beginning in fiscal 2006 (Jan.). We view the deal as highly favorable. We are raising our 12-month target price for Dick's to $35 from $29, and for Galyan's to $17 from $8.
PalmOne (PLMO ): Reiterates 3 STARS (hold)
Analyst: Megan Graham-Hackett PalmOne posted May-quarter non-GAAP EPS of 32 cents, vs. a 28-cent loss, ahead of our 7 cents estimate mostly due to lower costs but also higher gross margin vs. our estimate. Year-over-year revenue growth of 23% was a bit above our model and company guidance and was aided by strong Treo sales. PalmOne sees August-quarter revenues of $250 million to $260 million, just above our model. S&P is raising the fiscal 2005 (May) earnings estimate to $1.31 from 59 cents on stronger-than-expected revenues. We project a fiscal 2005 loss of 48 cents on a S&P Core basis. While revenue momentum and operational execution is improving, shares trade at the high end of peers at a price-sales of more than one, and we would not add to positions.