S&P Keeps Hold on Intel

Plus: analysts' opinions of PeopleSoft and Tiffany & Co., and more

Intel (INTC ): Reiterates 3 STARS (hold)

Analyst: Amrit Tewary

Intel announced that its president and COO Paul Otellini will succeed Craig Barrett as CEO. Also, Barrett will replace Andrew Grove as chairman of the board. These changes will take effect on May 18, 2005. We are not surprised by the CEO change, and we believe the market has been anticipating such a change for some time. However, the timing of the move was not clear until now. We believe Mr. Otellini's significant high-level management experience in various aspects of the company's business have prepared him well to take over at the chipmaker's helm.

PeopleSoft (PSFT ): Reiterates 3 STARS (hold)

Analyst: Jonathan Rudy, CFA

PeopleSoft's board rejected Oracle's (ORCL ) latest cash tender offer of $24 per share, stating that Oracle's offer undervalues PeopleSoft. We are not surprised by this decision, since PeopleSoft rejected Oracle's $26 per share offer earlier this year. Oracle has said that if less than 50% of PeopleSoft's shareholders tender their shares by Nov. 19, it will withdraw its offer and walk away from the deal. We believe that unless Oracle raises its offer price, a deal with PeopleSoft appears unlikely. With PeopleSoft trading at a discount to peers on an enterprise value-to-sales basis, we would hold its shares.

Tiffany & Co. (TIF ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Jason Asaeda

Tiffany & Co. posted October-quarter earnings per share of 14 cents, vs. 19 cents, missing our estimate by 4 cents, due to sales shortfalls and an $8.7 million LIFO inventory charge for higher costs of precious metals/diamonds. The company cut its fiscal 2005 (Jan.) earnings-per-share guidance to $1.43 to $1.48 from $1.55 to $1.60, to reflect weak sales trends and a likely January-quarter LIFO charge. We are cutting our fiscal 2005 earnings per share estimate by 9 cents to $1.44, and fiscal 2006's by 5 cents to $1.65. Given ongoing challenges we see in Japan, we are wary of near-term sales and earnings shortfalls. We are lowering our 12-month target price by $2 to $28, on updated p-e and discounted-cash-flow analyses.

Target (TGT ): Maintains 3 STARS (hold)

Analyst: Jason Asaeda

Target posted October-quarter earnings per share of 37 cents, vs. 33 cents, beating our estimate by a penny. Gross margin expanded on improved initial markups. Target also bought back 11.4 million shares for $503 million during the quarter. We look for $1-only aisles, expanded grocery selections, new apparel and home assortments, and a stronger value message to continue to resonate well with customers this holiday season and into fiscal 2006 (ending January). However, our sales projections are unchanged. We are raising our fiscal 2005 earnings per share estimate slightly to $2.44 from $2.43, keeping fiscal 2006's at $2.60. Our 12-month target price remains $50.

Blockbuster (BBI ): Reiterates 3 STARS (hold)

Analyst: Amy Glynn, CFA

Blockbuster states that it is interested in buying Hollywood Entertainment (HLYW ) for $11.50 per share, plus debt, for a total of about $1 billion, above Hollywood Entertainment's agreement to go private for $10.25 per share. Terms have not yet been formally discussed. Blockbuster believes the proposed deal would be immediately accretive to earnings per share and cash flow. With about 1900 video and 600 game stores, Hollywood Entertainment is the second-largest U.S. video rental retailer. Blockbuster cites the advantage of combining brand portfolios, but we see a risk in additional investment in the declining video rental market. We are raising our target price by $1 to $8.

Jones Apparel (JNY ): Reiterates 4 STARS (accumulate)

Analyst: Marie Driscoll, CFA

Jones Apparel today signed a merger pact valued at about $400 million with Barney's New York. The deal, expected to close by yearend, is subject to closing conditions, and will expose Jones Apparel to the large high-end luxury market. We expect Jones Apparel's financial muscle to support Barney's expansion plans for its flagship, co-op and outlet stores (currently 21 total) and look for back-office synergies and improved operating margins. Barney's sales and operating profits (fiscal July) were $444 million and $33 million, respectively. We see the deal as a potential boost to Jones Apparel's channel, market, and brand diversification strategy.

Starbucks (SBUX ): Reiterates 3 STARS (hold)

Analyst: Dennis Milton

Starbucks posted September-quarter earnings per share of 25 cents, vs. 17 cents, 2 cents below our estimate. Results benefited from expansion and strong same-store sales growth of 8% in the U.S. and 5% at international stores. Fiscal 2004 (September) earnings per share jumped 42%, to 95 cents from 67 cents. We are raising our fiscal 2005 earnings-per-share estimate by 2 cents to $1.15, and our 12-month target price by $3 to $54, to account for strong sales trends. At 44 times our calendar 2005 earnings per share estimate of $1.20, the shares trade at a lofty premium to the S&P 500, which we believe is justified, given Starbuck's strong growth prospects and history of successful product innovation.

Fair Isaac (FIC ): Maintains 3 STARS (hold)

Analyst: Zaineb Bokhari

Fair Issac posted September-quarter earnings per share of 20 cents, vs. 42 cents, 2 cents better than our estimate. Revenues rose 18%, reflecting contributions from acquisitions and modest organic growth. Operating margin narrowed considerably because of higher expenses resulting from the integration of London Bridge, and a litigation charge. Fair Isaac completed its acquisition of Braun Consulting for approximately $31 million. We expect Braun to contribute $28 million to $31 million of revenues in fiscal 2005 (September). We are maintaining our fiscal 2005 earnings-per-share estimate of $1.75. Based on relative analysis, we are raising our 12-month target price to $33 from $31.

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