S&P Says Buy Citigroup

Citigroup (C ): Maintains 5 STARS (buy)

Analyst: Evan Momios, CFA

We believe the identification of Citigroup's headquarters as a possible target for a terrorist attack should not divert investors' attention from Citigroup's investment fundamentals. We believe Citigroup is the most diversified by product and geography of the financial-services companies we follow, with above-average profitability and growth prospects not reflected in its share price. Our 12-month target price is $60, or 13.3 times our 2005 operating earnings per share of $4.52, compared with a present price of 11 times our 2004 operating earnings per share estimate of $4.07, and an average of about 14 times over the last five years.

Synopsys (SNPS ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Colin McArdle

Citing lower-than-expected bookings related to unspecified delays in customers' purchasing decisions, Synopsys lowered the July-quarter operating earnings per share guidance to the 31 cents to 34 cents range (GAAP is 15 cents to 19 cents), from the prior 35 cents to 40 cents. We're continuing our current earnings per share estimate of 34 cents, along with our 2004 (Oct.) estimate of $1.38, pending the company's quarterly conference call in late August. But we're downgrading its shares to reflect fundamental concerns and lack of guidance detail. We now capitalize our fiscal 2004 earnings per share at 10, a discount to peers, and derive a 12-month price target of $14, cut from $33.

Procter & Gamble (PG ): Reiterates 5 STARS (buy)

Analyst: Howard Choe

P&G posted June-quarter earnings per share of 50 cents, vs. 43 cents, 2 cents higher than our estimate. Organic volume growth was led by healthcare (up 12%) and beauty care (11%), and operating profit rose 16%. The outlook for fiscal 2005 (June) appears solid to us, with product innovation and fast-growing markets driving volume, and with restructuring benefits and easier comparisons driving profit growth. We're raising our fiscal 2005 earnings per share to $2.59 from $2.57 and maintaining our 12-month target price at $65. Given the higher, more consistent earnings growth, we believe P&G should trade higher than its peer-like 20 times forward p-e.

Apollo Group (APOL ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate); Corinthian Colleges (COCO ): Reiterates 3 STARS (hold)

Analyst: Michael Jaffe

Stocks of for-profit educators are sharply out of favor on allegations of dishonest business practices and worries about slowing sector trends, as well as lowered guidance this morning by Corinthian Colleges, we believe. We still view Apollo as a fast-growing, well-run sector leader, and have heard no allegations related to its operations. We wouldn't advise placing more funds in educators until things settle down, but think Apollo is a strong holding for exposure to the group. We're cutting our 12-month target price to $81 from $109, based on a p-e-to-growth analysis.

Corinthian now sees June-quarter earnings per share of 19 cents to 20 cents, vs. the 30 cents we had estimated and the Street's 28 cents. It also guided lower for its September quarter and full-year fiscal 2005 (June). Although same-school student population at June 30 was 15% higher than a year earlier, Corinthian is attributing its shortfalls to lower student growth than expected, as well negative publicity related to litigation, which resulted in narrower margins. We're lowering our fiscal 2004 earnings per share estimate to 89 cents from $1.00, and cutting fiscal 2005's to 95 cents from $1.30. We're also cutting our 12-month target price to $9 from $17.

P.F. Chang's China Bistro (PFCB ): Reiterates 5 STARS (buy)

Analyst: Markos Kaminis

With a more aggressive expansion plan for its Pei Wei chain and the addition of new stores that generate revenues below those at mature locations, we expect pressure on P.F. Chang's 2005 restaurant operating margin. We're reducing our earnings per share estimate for 2005 to $1.61 from $1.65, but still see 2004 at $1.27. We believe that as the business grows, P.F. Chang's will realize leverage on fixed costs. We've adjusted our discounted cash-flow model, incorporating increased capital expenditures, depreciation, and revenue levels. Our blend of valuation metrics leads us to trim our 12-month target price to $56 from $57.

Taiwan Semiconductor (TSM ): Maintains 5 STARS (buy)

Analyst: Chuanyang Lim

Taiwan Semiconductor recently posted second-quarter results that beat our forecasts, with both production efficiency and average selling price better than we expected. The company expects its plants will continue to operate at full capacity for the next few quarters. We're raising our 2004 earnings per ADS estimates to 56 cents from 50 cents and 2005's to 54 cents from 53 cents. However, we're cutting our 12-month target to $8 from $12, using a target price/book multiple of 3, at the low end of the historical range. We think such a multiple is warranted, since we believe investors' risk appetite for technology stocks is waning.

Chevron Texaco (CVX ): Reiterates 5 STARS (buy)

Analyst: Tina Vital

Chevron posted second-quarter earnings per share of $3.60 after a 55-cent asset sale gain, vs. $1.61, before a net special gain of 24 cents and a net special charge of 11 cents, respectively. Results beat S&P's estimate by 91 cents and the Street's by 88 cents, reflecting higher oil and gas prices and strong refining margins. Hydrocarbon production dropped 3.7% on field declines and divestments, but were in line with our projection. Chevron raised its dividend 9.6%, and set a 2-for-1 split. We're raising our 2004 earnings per share estimate by 76 cents to $10.76, and upping the 2005 estimate by 47 cents to $9.14. Our 12-month target price remains $110. With a 3.3% dividend yield, we would buy the shares.

Cox Communications (COX ): Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CFA, CPA

The Wall Street Journal reported that majority owner Cox Enterprises is mulling plans to take Cox private in a $7.9 billion deal that would value shares at $32 each, a 16% premium to Friday's close. The news was somewhat of a surprise, given our take on recent strategy statements and conversation with Cox. But while plans are likely tentative, we think a private deal could ultimately pan out, since shares of the nation's fourth largest, and in our view, well-run cable operator, have lagged peers in 2004 amid renewed market jitters. It's not entirely clear how this news might affect any possible Cox bid for bankrupt Adelphia.

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