S&P Upgrades Chiron to Hold

Also: analysts' opinions on Hasbro, Marsh & McLennan, 3M, and more

Chiron (CHIR ): Upgrading to 3 STARS (hold) from 1 STAR (sell)

Analyst: Frank DiLorenzo, CFA

With the shares declining over the past two weeks after the announcement that Chiron will not supply Fluvirin vaccines for the 2004/2005 flu season due to contamination issues, we see limited downside left on a valuation basis. We assume Chiron could supply the vaccine for the 2005/2006 season, but at a diminished level compared to before its manufacturing problems. We see difficult comparisons for Chiron's MS drug Betaseron if Biogen Idec's Antegren is approved. Assuming Chiron trades at a p-e-to growth multiple of 1.4 on our 2005 earnings per share estimate of $1.90, our target price remains $33.

Hasbro (HAS ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Amy Glynn, CFA

The toy-maker's third-quarter earnings per share of 45 cents, vs. operating earnings per share of 47 cents, is in line with our estimate. Following a 2% dip in the third quarter, Hasbro says revenue growth for 2004 is unlikely, citing an uncertain retail environment and softness in the boys business. We think their new product launches will be able to partly offset overall weakness at retail, and believe Hasbro has done well in reducing costs. However, based on our view of a lack of near-term catalyst, we would not add to positions. We are cutting our 2004 and 2005 estimates to $1.14 and $1.35, from $1.25 and $1.50. We are lowering our target price by $2 to $19.

Marsh & McLennan (MMC ): Downgrades to 1 STAR (sell) from 2 STARS (avoid)

Analyst: Gregory Simcik, CFA

Our downgrade follows Marsh & McLennan's suspension of contingent commissions with carriers. We see a rising likelihood that regulators and legislators will look to ban some forms of contingent commissions. We also believe Marsh & McLennan could lose blue chip clients because of allegations of price-fixing. We are lowering our 12-month target price to $19 from $39, based on a lower multiple of 10 times our new 2005 earnings per share estimate of $1.94. This estimate has been reduced by 40% from our old estimate of $3.25 and assumes no contingent commissions and a 33% decline in Marsh revenues, excluding recently acquired Kroll Inc.

3M (MMM ): Maintains 3 STARS (hold)

Analyst: Anthony Fiore, CFA

3M posted third-quarter earnings per share of 97 cents, vs. 83 cents, a penny below the Street's view, but in line with our 97-cents estimate. Net sales rose 7.6%, with volumes and currency contributing about 5.6% and 2.5%, and pricing reducing sales by 0.5%. Broad-based growth across many of the company's businesses and geographies was partially offset by a greater-than-expected slowdown in its display and graphics segment. We continue to see operating earnings per share for 2004 of $3.72 and we see $4.07 for 2005. However, we are reducing our 12-month target price to $80 from $89, based on our updated discounted cash flow and p-e analyses.

UnumProvident (UNM ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Gregory Simcik, CFA

Our upgrade reflects the recent pullback in Unum's share price that puts the stock back below our 12-month target price of $15. We believe a continuing stabilization of the job market could benefit claims trends at Unum's income-protection segment. However, we also believe that the performance of its stock could be held in check by pending results from state regulator market-conduct examinations and by indications that the New York Attorney General Spitzer's insurance probe may be spreading to major group life underwriters such as Unum.

BlackRock (BLK ): Maintains 2 STARS (avoid)

Analyst: Robert Hansen, CFA

BlackRock posted third-quarter earnings per share of 72 cents, vs. 61 cents, matching our estimate, excluding the 87-cent charge for the 2002 Long Term Retention and Incentive Plan. Assets under management rose 4.5% from the second quarter to $323 billion, driven by market appreciation and net inflows. We see market depreciation in BlackRock's fixed income products in 2005. We are maintaining our earnings per share estimates of $3.00 for 2004 and $3.15 for 2005, excluding their long-term incentive plan (LTIP). Our 12-month target price remains $62, 19 times our 2005 earnings per share estimate. At nearly 22 times our 2005 estimate, a significant premium to the peer group average of 17 times, we view BlackRock's valuation as unattractive.

Mattel (MAT ): Maintains 3 STARS (hold)

Analyst: Amy Glynn, CFA

Mattel's third-quarter earnings per share of 61 cents is flat with a year ago, but below our 63-cent estimate. Ongoing weakness in Barbie products led to a 2% revenue dip, but Mattel also cites retailer reluctance to take inventory risk. We think the toy industry suffers from lackluster top-line growth, not helped by the impact on demand of high fuel costs and by uncertain consumer spending patterns. We are trimming 2004 and 2005 estimates to $1.17 and $1.25, from $1.20 and $1.31, despite aid we see from lower interest and share count. We are cutting our 12-month target price by $1 to $18, but with 2.2% yield, we would hold Mattel.

Blockbuster (BBI ): Maintains 1 STAR (sell)

Analyst: Amy Glynn, CFA

After a price cut by NetFlix, Blockbuster lowered its monthly DVD rental subscription by $2.50 to $17.49. The company seems optimistic about its ability to rapidly grow subscribers, but we are wary of heavy investment spending and its impact on profit. With customer loyalty we view as low, we think pricing is critical in attracting new customers. However, we do not believe a fast-growing, lower-margin customer base is positive for the industry. Despite Blockbuster including in-store rental coupons with online service, we think lower fees will ultimately impact in-store rental market.

American Standard (ASD ): Maintains 5 STARS (buy)

Analyst: Michael Jaffe

American Standard's third-quarter earnings per share of 65 cents before one-time items, vs. 55 cents is 2 cents below our forecast. Strong demand for vehicle controls and productivity initiatives were outweighed mostly by a bigger impact than we expected in commodity costs. We are trimming our 2004 and 2005 earnings per share estimates by 5 each, to $2.20 and $2.50. At 15 times our 2005 estimate, American Standard is at small discount to the S&P 500. Given our view that the its key commercial air-conditioning business is in early stages of rebound, we think a premium is warranted. But with lower estimates, we are trimming our p-e- and discounted-cash-flow-based 12-month target price by $3 to $49.

Grainger (GWW ): Maintains 5 STARS (buy)

Analyst: Stewart Scharf, Bryon Korutz

Grainger posted third-quarter earnings per share of 74 cents, vs. 62 cents, 4 cents above our estimate. Sales rose 8.4%, driven by growth in the lab safety, integrated supply, and branch-based divisions. Margins were aided by productivity improvements related to an upgraded logistics network and to higher sales. We see additional share buybacks and niche acquisitions. The company also raised its full-year 2004 earnings per share guidance to $2.80 to $2.90 from $2.65 to $2.85. We are placing our earnings estimate under review. With shares trading below our 12-month target price of $67, we would buy the shares.

Tupperware (TUP ): Maintains 3 STARS (hold)

Analyst: Howard Choe

Tupperware posted third-quarter earnings per share of 13 cents, vs. year-ago breakeven, 4 cents above our estimate. We attribute the upside to an adjustment in taxes. Sales (excluding foreign exchange) slipped 1%, mainly on weakness in the U.S. and Japan. Operating profit was up off a weak base, rising 47% vs. last year's 67% decline. Tupperware's outlook for the rest of 2004 remains modest, in our view, based on weak sales and lower foreign exchange benefit. We are maintaining our 2004 and 2005 earnings per share estimates at $1.28 and $1.40. Given Tupperware's sales growth outlook, we view its shares as fairly valued at 12 times our 2005 estimate, a slight discount to peers.

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