S&P Says Buy Emulex

Emulex (ELX ): Maintains 5 STARS (buy)

Analyst: Richard Stice, CFA

Shares have declined nearly 20% thus far in June, and we believe this provides an enhanced buying opportunity. Emulex is the leader with a marketshare of nearly 50% in a niche that we believe is expanding and has high barriers to entry. Moreover, we see future demand boosted by a continuing shift toward networked storage architectures. Shares trade at 14 times our calendar 2004 EPS estimate of $1.05, and have a 0.85 ratio of p-e to growth. Our 12-month target price of $31 combines discounted cash flow and relative price-sales analyses.

Forest Laboratories (FRX ): Maintains 3 STARS (hold)

Analyst: Herman Saftla

Recent European Celexa and Lexapro antidepressant studies in children and adolescents showed that the drugs offered no advantage over a placebo. We estimate that children and adolescents account for about 7% to 8% of the market. We expect generic erosion in Celexa by January, 2005. On the plus side, news of a delay in the launch of Eli Lilly's Cymbalta antidepressant should benefit Lexapro. We also see robust growth for the new Nemanda Alzheimer's drug. We are cutting our 12-month target price by $5 to $65, based on a blend of our revised relative p-e and discounted cash flow models.

Paychex (PAYX ): Maintains 3 STARS (hold)

Analyst: Stephanie Crane

Paychex posted May-quarter EPS of 16 cents, vs. 19 cents, well below our estimate of 25 cents. Revenue rose 14%, also lower than our forecast. Operating margin narrowed to 26%, on costs from litigation, vs. the forecast of 34%, which was achieved in the February quarter. We are lowering our fiscal 2005 (May) EPS estimate to 95 cents, from $1.00. With the shares trading above peers, based on enterprise value to sales and p-e-to-growth metrics, we would not add to positions; our target price stays $35. But, in our view, strong profitability and an improving economic climate for jobs growth make the shares worth holding.

Earthlink (ELNK ): Maintains 4 STARS (accumulate)

Analyst: Scott Kessler

Shares fell 8% yesterday due, we think, to a report by a sell-side analyst on competitor United Online, indicating that it's offering lowered prices to new customers for its dial-up and high-speed Internet access services. While we could not confirm this pricing information, we continue to see Earthlink as well-positioned to withstand potential pricing pressure, due to its brand, distribution relationships, and value-added services. Our 12-month target price remains $13.

Nike (NKE ): Maintains 4 STARS (accumulate)

Analyst: Yogeesh Wagle

Nike posted May-quarter EPS of $1.13, vs. 92 cents, in line with our estimate. Revenues grew 17% and gross margin reached 43.8%, both better than our forecasts, while marketing expenditures grew faster than we had expected. We believe consumer spending on footwear is shifting towards performance products, a key area of strength for Nike, in our view. Our fiscal 2005 (May) EPS estimate remains $4.00, based on expected high-single digit revenue growth and modest gross margin expansion. Our $89 target price is 22 times our fiscal 2005 EPS estimate, implying a premium to peers based on our favorable outlook.

Tektronix (TEK ): Maintains 3 STARS (hold)

Analyst: Bryon Korutz

Tektronix posted May-quarter EPS of 34 cents, before one-time items, vs. 12 cents, 8 centsabove our estimate. In our view, the upside surprise is mainly related to a greater-than-expected rise in revenues, which were up 27%. Margins were aided by greater sales as well as cost controls. We are boosting our fiscal 2005 (May) EPS estimate to $1.45, from $1.25, and we are also increasing our 12-month target price by $2, to $34. We expect sales to be aided by new products, as well as the continued recovery in end markets. But with shares near our 12-month target price, we would not add to positions.

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