Still Buy Caremark

Caremark Rx (CMX ): Still 5 STARS (buy)

Analyst: Phillip Seligman

We view Caremark's receipt of an administrative subpoena from the Washington State Attorney General, and the Washington AG's note that AGs of 18 more states will follow suit, as part of a series of probes seeking info about the business practices of Caremark and other pharmacy benefit managers. We believe the new probes address the same allegation as have the others -- that PBMs steer doctors to pricier drugs to boost profits. So far, the only risk we see is increased regulatory oversight. Our 12-month target price is $42, representing a 23-times forward p-e ratio -- a premium to S&P 500's -- on our 2005 EPS estimate of $1.85.

Career Education (CECO ): Downgraded to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Massimo Santicchia

Career Education says regulatory agencies have placed American InterContinental University on warning status and Brooks College on probation. Following the recent class-action shareholder lawsuit accusing the company of student-record falsification, and the disclosure of an SEC investigation, we see today's news as further clouding Career Education's prospects and its management credibility. Despite the recent price drop, we believe that at 24 times our 2004 EPS estimate of $1.76, the shares do not fully reflect what we view as increased risk of systematic fraud. Our new target price is $30, cut today from $60.

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

Analyst: Amrit Tewary

In its 10-Q filing on July 2, Best Buy reiterated its earlier earnings per share guidance of 47 cents to 52 cents for the August quarter and $2.80 to $2.93 for full fiscal 2005 (ending February). We are keeping our earnings per share estimates of 51 cents for the August quarter and $2.93 for full fiscal 2005. We think Best Buy's Reward Zone customer-loyalty program will continue to drive store traffic levels higher. Also, we believe its "customer centricity" initiative should enable the company to effectively target and retain its most profitable customers. We see significant appreciation potential to our 12-month target price of $67, which is based on our historical p-e model.

Micron Technology (MU ): Reiterates 3 STARS (hold)

Analyst: Thomas Smith, CFA

Based on our outlook for strong demand for DRAM and other memory chips in the second half of 2004, and on Micron's improving margins in its May-quarter results, we are raising our earnings per share estimates to 33 cents from 19 cents for fiscal 2004 (ending August) and to $1.00 from 85 cents for fiscal 2005. After a 50-cent deduction for stock option expense, we expect S&P Core Earnings of 50 cents per share for fiscal 2005. Our 12-month target price is $16, with our analysis by relative measures indicating higher 12-month price potential, but our discounted cash-flow analysis indicating less potential.

Maxtor (MXO ): Reiterates 3 STARS (hold)

Analyst: Richard Stice, CFA

Maxtor sees second quarter revenue of $820 million to $825 million and operating loss per share of 16 cents to 20 cents. Previous guidance was for revenue of $955 million to $980 million and an operating loss of 4 cents to 8 cents. The company cites severe price declines for the shortfall. We are revising our 2004 estimate to a loss of 22 cents per share from earnings per share of 17 cents, our 2005 estimate to 21 cents earnings per share from 76 cents earnings per share, and our 12-month target price to $6 from $7. While the near-term trend is disappointing, we advise holding Maxtor, based on our view of a favorable market position and a pickup we anticipate in PC demand.

Verizon Communications (VZ ): Reiterates 3 STARS (hold)

Analyst: Todd Rosenbluth

We view favorably Verizon's planned $418 million purchase of mostly western U.S. wireless assets from Qwest Communications as Verizon looks to deploy wireless broadband services nationwide. We believe the move is consistent with its focus on high-growth segments. However, we are concerned by news Verizon overstated its first-quarter 2004 long-distance line count by roughly 9%, suggesting to us that its bundled services penetration may be less successful than originally viewed. We are maintaining our 2004 earnings per share estimate of $2.45 and our 12-month target price of $37. Verizon's dividend yields 4.3%.

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