S&P Says Buy Pacific Sunwear
Pacific Sunwear (PSUN ): Reiterates 5 STARS (buy)
Analyst: Marie Driscoll, CFA
The teen retailer posted second-quarter earnings per share of 25 cents vs. 17 cents, ahead of our 23 cents estimate. Same-store sales rose 7.2% at PacSun, 3% at demo, and 6.8% on a consolidated basis. Operating margin expanded 200 basis points on a 150-basis-point improvement in selling, general, and administrative costs and gross-margin expansion. Pacific Sun is fine-tuning its merchandise in the girl's portions of PacSun, and at demo, which should drive solid sales and earnings per share gains in the second half, in our view. We look for further margin expansion over the next few years as Pacific Sun works towards a 15% operating margin goal. We raised our fiscal 2005 (Jan.) and ficsal 2006 earnings per share estimates by 2 cents to $1.37 and $1.62, respectively. We maintain our $29 target price.
Symantec (SYMC ): Maintains 4 STARS (accumulate)
Analyst: Jonathan Rudy, CFA
Symantec says that because of an error in calculating deferred revenue, $20 million of revenue from the June quarter will be deferred rather than recognized in the quarter. The effect is not material to any prior period. Additionally, there's no cash flow impact, and the $20 million will be recognized over the next four quarters as it comes out of deferred revenue. Symantec also reiterated its guidance for fiscal 2005 (Mar.). Despite the error, we believe that Symantec's core Internet-security business remains strong and that the shares remain attractive at a discount to peers on a p-e-to-growth basis.
Cablevision (CVC ): Maintains 3 STARS (hold)
Analyst: Tuna Amobi, CFA, CPA
In a second-quarter call, Cablevision said the late June launch of its "triple-play" cross-promotions is generating gains in bundled connects and having an impact on churn, with minimal cannibalization of existing subscribers. We're encouraged by the early report, but we're wary of a price squeeze on this formula, which is likely unsustainable over the long term. We think concerns on funding for "Voom," Cablevision's direct-broadcast satellite service, could weigh on the stock. With a likely third-quarter "Voom" spinoff, we're widening our 2004 and 2005 loss estimate by 15 cents each to $1.48 and $1.20, and cutting our target price by $3 to $20.
Countrywide Financial (CFC ): Reiterates 3 STARS (hold)
Analyst: Erik Eisenstein
Countrywide posted July loan fundings of $28.7 million, vs. $32 million in June and $51.8 million in July, 2003. Although we view the figure as a slight disappointment, we're maintaining our $94.1 million forecast for the full third quarter, both because of a slight increase in the pipeline during the month, as well as a recent drop in fixed mortgage rates. Countrywide's July servicing and banking results were more or less within our expectations. We're leaving our 2004 and 2005 earnings per share estimates at $8.02 and $8.22, and our 12-month target price at $72, which reflects a historically above-average p-e on our 2005 estimate.
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