S&P Says Accumulate EBay

EBay (EBAY ): Reiterates 4 STARS (accumulate)

Analyst: Scott Kessler

We think the June 24-26 eBay Live conference could be a positive catalyst. And eBay today announced the proposed purchase of Baazee.com, India's largest online marketplace, for some $50 million. We expect the deal to close in the third quarter, subject to approvals. Yesterday, AuctionDrop announced its eBay drop-off consignment services would be available at some 3,400 UPS Store locations. We project this nascent service has a potential for over 15,000 stores and over $1 bilion in eBay domestic gross merchandise sales by 2008. Our discounted cash flow-based 12-month target price remains $102.

Marvell Technology (MRVL ): Initiates with 3 STARS (hold)

Analyst: Colin McArdle

Marvell is a diversified supplier of integrated circuits to the communications, storage, and networking markets. We expect its revenues to grow about 42% in fiscal 2005 (Jan.) as end markets for the technology rebound. However, demand for this equipment is highly cyclical, Marvell's markets are highly competitive, and this is a high-beta stock. We expect the company to post $1.59 EPS in fiscal 2005, and $1.75 in fiscal 2006. We apply a peer group multiple of 35, based on the fiscal 2005 EPS estimate, deriving a $56 12-month target price. S&P Core EPS are estimated to be $1.30 for fiscal 2005.

SCP Pool (POOL ): Reiterates 5 STARS (buy)

Analyst: Markos Kaminis

Following SCP's higher revised EPS guidance for the second quarter and fiscal 2004, we have adjusted our earnings model to reflect our view of the company's solid execution and expectation of favorable weather in 2004, vs. 2003. We are raising our second-quarter EPS estimate to $1.16, from $1.09, upping 2004's to $1.77, from $1.70, and upping 2005's to $2.04, from $1.97. At 24 times our 2004 EPS estimate, we view the shares as modestly valued against our 22% two-year EPS growth forecast. Based primarily on our valuation of free cash flow, with assumed cost of equity of 9.9%, we are raising our 12-month target price to $52, from $50.

FedEx (FDX ): Maintains 5 STARS (buy)

Analyst: James Corridore

FedEx posted fiscal 2004 fourth-quarter (May) EPS of $1.36, vs. 92 cents, meeting raised guidance. Revenues rose 21%, while margins were aided by increased package weights, a business realignment program, and good fixed-cost leverage. The company guided to $4.20-$4.40 EPS for fiscal 2005. We are raising our fiscal 2005 EPS estimate to $4.35 from $4.25. FedEx has traded in a p-e range of 17-29 times EPS over the past three years; using our fiscal 2005 estimate, the stock is at the low end of that range. We expect shares to approach the high end over the next year. Our 12-month target price remains $106, which is 24 times our fiscal 2005 EPS estimate.

Johnson & Johnson (JNJ ): Reiterates 3 STARS (hold)

Analyst: Robert Gold

Late yesterday, the FDA extended patent protection on J&J's Duragesic pain-relief patch through January, 2005, while reversing approval of a generic product from Mylan Labs. In our opinion, the FDA ruling provides some increased visibility to our 2004 EPS forecast of $2.96, as we believe a July, 2004 launch of a generic Duragesic patch could have lowered second-half EPS by up to 5 cents. However, we think the FDA decision to reverse a prior generic drug approval is extremely unusual, and could be overturned in court. Our 12-month target price remains $57.

Darden Restaurants (DRI ): Maintains 3 STARS (hold)

Analyst: Dennis Milton

Darden posted May-quarter EPS of 46 cents, excluding one-time items, vs. 37 cents, 1 cent below our estimate. Same-store sales grew 5.0% at Olive Garden and declined 6.4% at Red Lobster. Fiscal 2004 (May) EPS rose 18 cents to $1.50, excluding one-time items. We are lowering our fiscal 2005 EPS estimate by 2 cents to $1.62, and our 12-month target price by $1 to $24, to account for recent sales trends. At 13.5 times our calendar 2004 EPS estimate of $1.60, shares trade at a discount to peers. We believe this discount is appropriate, given that unexpensed stock options would reduce projected EPS by an estimated 15 cents.

Automatic Data Processing (ADP ): Maintains 5 STARS (buy)

Analyst: Stephanie Crane

ADP plans to buy the U.S. clearing and broker-dealer services of Bank of America , which has revenues of about $85 million, pending necessary approvals. Dilution is expected to be as much as 2 cents for the next two years. We see the deal as positive and likely to boost ADP's share of the business process outsourcing market, which research firm IDC estimates will grow by double digits in the next five years. We still see EPS of 39 cents in the June quarter, $1.58 in fiscal 2004 (Jun.), and $1.75 in fiscal 2005. Our 12-month target price remains $54, based on an average peer p-e multiple of 31 times our fiscal 2005 estimate.

3Com (COMS ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

3Com posted a May-quarter GAAP loss of 5 cents vs. an 11-cent loss. Excluding charges and gains, we estimate 3Com had a 3-cent loss, vs. our 10-cent loss estimate. Revenues rose 5% year over year to $183 million, $8 million above our model, as strength in enterprise revenue in Americas offset weak European revenue. 3Com sees August-quarter revenue flat to up slightly quarter over quarter, about $5 million above our model. We are narrowing our fiscal 2005 (May) loss estimate to 19 cents from a 36-cent loss on cost-cutting progress. We still view 3Com's competitive position as challenged, but with the shares trading at a discount to peers on price-sales basis, we believe the shares are worth holding.

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