S&P Ups Boston Scientific
Boston Scientific (BSX ): Upgrades to 3 STARS (hold) from 1 STAR (sell)
Analyst: Robert Gold
The FDA has extended the shelf life of the company's Taxus Express2 stent system to nine months from six months, supported by data showing no deterioration in the performance of the polymer or the drug. While there could be additional recalls of older Taxus units, we think the FDA would not have moved forward with a shelf-life extension if it felt balloon deployment issues remained on newly made units. We see some headline risk remaining, but we expect support for shares, given continued strong demand for drug-coated stents and the absence of a clear third player in the U.S. market.
Barnes & Noble (BKS ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)
Analyst: Jason Asaeda
July-quarter operating earnings per share of 24 cents, vs. 20 cents beat our estimate by 9 cents. Profitability benefited from strength in nonfiction book sales and lower bestseller discounts, reflecting the cycling of last year's Harry Potter sales. We're increasing our fiscal 2005 (Jan.) operating earnings per share estimate by 18 cents to $2.40, and upping fiscal 2006's by 23 cents to $2.65. This is based on a strong July quarter, a better outlook we see for book sales, expected interest savings from early debt redemption, and a reduced share count. We are raising our 12-month target price to $36 from $31, based on our p-e and price-to-sales analysis.
DeVry (DV ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)
Analyst: Michael Jaffe
June-quarter earnings per share of 22 cents, vs. 17 cents after charges, is 3 cents below our forecast. Results reflect more graduate and online students. However, undergrad enrollments fell 5.8% for the summer semester, on still-weak demand for DeVry's technology programs. We are cutting our fiscal 2005 (June) earnings per share estimate by 10 cents to 90 cents, and see $1.00 in fiscal 2006. Given our forecast of limited growth for DeVry, and lower peer valuations after recent allegations of dishonest practices at some, we see the company's valuation shrinking more. We are cutting our target price to $17 from $29.
Medtronic (MDT ): Reiterates 4 STARS (accumulate)
Analyst: Robert Gold Medtronic posted July-quarter results in line with expectations, with earnings per share of 43 cents vs. 37 cents on a 13.6% sales gain. Gross margin beat our 75% estimate, offset by higher selling, general and administrative (SG&A) costs than we modeled. Defibrillator (ICD) strength continued, pacing a bit lighter than we expected. We think this reflects usage of new ICDs in the traditional pacing population. We see a positive catalyst from the pending Medicare decision on ICD reimbursement, but we also view progress in drug-coated stent development as critical. Our fiscal 2005 (ending April) earnings per share estimate falls by 2 cents to $1.85 on more ICD competition. Our 12-month target price is $54.
Men's Wearhouse (MW ): Reiterates 3 STARS (hold)
Analyst: Marie Driscoll, CFA
The company reported second-quarter earnings per share of 50 cents, vs. 29 cents one year earlier, ahead of our 40-cent estimate. Comparable-store sales rose 7% and gross margin expanded 260 basis points. The company's department store competition kept prices firm, which allowed it to increase initial markup. We believe the fashion trend away from casual toward dress clothing is likely benefiting results, too. We raise our fiscal 2005 (ending January) earnings per share estimate to $1.85 from $1.70 and our fiscal 2006 forecast to $2.10 from $1.95. Our 12-month target price goes to $31 from $27, about 15 times our fiscal 2006 estimate. But we view the company's core concept as mature and do not advise adding to positions.
Brocade Communications (BRCD ): Reiterates 3 STARS (hold)
Analyst: Richard Stice, CFA
Brocade posted July-quarter earnings per share of 6 cents, vs. 1 cent, 1 cent above our estimate. Net revenues rose 3%, quarter-over-quarter. Gross margin widened notably due to a favorable product mix and operational efficiencies. We are raising our fiscal 2004 (ending October) earnings per share estimate by 1 cent to 18 cents and our fiscal 2005 forecast by 4 cents to 34 cents. Our new 12-month target price of $6, up from $5, is based on updated discounted cash-flow growth assumptions. Despite our view of growing competitive threats and limited visibility, given improving execution and Brocade's cash and investments of $3 per share, we advise holding existing positions.
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