S&P Cuts Analog Devices to Hold

Also: analysts' opinions on Dell and AmeriTrade. Plus more

Analog Devices (ADI ): Downgrades to 3 STARS (hold) from 5 STARS (buy)

Analyst: Thomas Smith, CFA; Amrit Tewary

The chipmaekr's July-quarter earnings per share of 43 cents, vs. 39 cents is 2 cents below our estimate. Sales and margins were below our projections, reflecting weak customer order rates. We are concerned about ADI's October-quarter guidance for flat sequential sales and margins, especially given upbeat guidance from peer Maxim Integrated a week ago. We are cutting our fiscal 2004 (Oct.) estimate to $1.54 from $1.64, cutting fiscal 2005's to $1.80 from $2.30, and trimming our 12-month target price to $37 from $70, based on p-e and price-sales analyses. Given the relatively weak outlook we see, we expect ADI to trade below peers and historical norms.

Dell (DELL ): Maintains 5 STARS (buy)

Analyst: Megan Graham-Hackett

July-quarter earnings per share of 31 cents, vs. 24 cents was in line with guidance. The PC maker's revenues were up 20% year-over-year to $11.7 billion, on a 19% rise in shipments, led by strength overseas. The company noted share gains but also a gradual recovery in business spending. Dell sees October-quarter revenues of $12.5 billion and earnings per share of 33 cents, vs. our 32 cents estimate. We raise our fiscal 2005 (Jan.) estimate by a penny to $1.27. Our S&P Core earnings per share estimate is 80 cents, which reflects the projected stock-option expense. While Dell is executing well in a tough environment, we see little room for an upside surprise. With shares trading near our $35 target price, based on our discounted cash-flow analysis, we would hold the shares.

AmeriTrade (AMTD ): Maintains 5 STARS (buy)

Analyst: Robert Hansen, CFA

Online broker AmeriTrade reported average daily client trades of 135,000 in July, vs. 163,906 in the June quarter. Account openings slowed, client assets declined, and margin loan balances eased. We expect a rebound in trading volumes but remain concerned that AmeriTrade clients are mostly focused on NASDAQ-listed companies. We are lowering our fiscal 2004 (Sep.) earnings per share estimates to 63 cents from 68 cents and fiscal 2005's to 70 cents from 85 cents. Our 12-month target price goes to $14 from $15, which is 20 times our fiscal 2005 earnings per share estimate, above peers. Although we see weak a September quarter, we believe investors will soon focus on fiscal 2005 and AmeriTrade's competitive advantage.

Teva Pharmaceuticals (TEVA ): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Phillip Seligman

We think recent weakness in the Isreali-based drugmaker reflects investor worries about pending Copaxane rival, Neurontin litigation, a generic threat, election uncertainties, the possibility of an accounting problem, which Teva denies, and compressed peer valuations. We remain upbeat on Teva's diversification and large pipeline, and see strong long-term earnings per ADR growth. Assuming Teva will be volatile for many months, we are more conservative and cutting the forward p-e to 19, a merited, we believe, 25% premium to peers. With our 2005 earnings per ADR estimate $1.65, our target price drops $8 to $31.

Intel (INTC ): Maintains 5 STARS (buy)

Analyst: Thomas Smith, CFA; Amrit Tewary

S&P maintains its neutral stance on semiconductors. We think near-term macro concerns and and fears of an inventory build will likely continue to dampen near-term order rates, and that the current semiconductor upcycle will be shorter and less robust than we earlier thought. We are cutting our 2004 industry growth forecast to 25% from 30%, cutting 2005's to 10% from 20%, and see 2006 as flat-to-down for most chipmakers. Though valuations have fallen, we think the discount multiples are merited in most cases.

Mesa Airlines (MESA ): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: James Corridore

With news that US Airways is apparently again on the brink of bankruptcy, we think there's a severe risk to Mesa shares, since the company gets a large portion of its revenues from US Air. We don't think Mesa has an adequate contingency plan to replace these revenues, or that it can make up the slack with additional flying for America West or United Airlines. We are cutting our 12-month target price to $4 from $6, to take into account the additional risk of US Air going out of business. We would sell Mesa shares.

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