S&P Keeps Buy on Alltel

Plus analysts' opinions on Starbucks, Medtronic, and more

Alltel (AT ): Maintains 4 STARS (buy)

Analyst: Todd Rosenbluth, Kenneth Leon, CPA

The New York Times reports that Alltel is in talks to acquire Western Wireless in a potential deal worth about $4 billion, plus $2 billion in assumed debt. While there are some network synergies between these carriers, we see 80% of Western Wireless's subscriber growth in 2005 coming from overseas operations, as its domestic wireless business is sluggish. While Alltel's strong balance sheet allows flexibility, reports suggest it would pay a premium of more than 30% for Western Wireless shares. We expect any potential deal to likely be dilutive for Alltel, but we await further clarity on the details.

Starbucks (SBUX ): Reiterates 3 STARS (hold)

Analyst: Dennis Milton

Same-store sales increased 8%, year to year, for December, and 10% for the December-quarter, in line with our estimate. We are maintaining our fiscal 2005 (ending September) earnings per share estimate at $1.17 and our 12-month target price at $60. At 50 times our calendar 2005 earnings per share estimate of $1.22, Starbucks trades at a sizable premium to the S&P 500. However, we believe the premium is justified by what we see as the company's strong growth prospects, history of successful product innovation, and recent operating margin improvement.

Medtronic (MDT ): Reiterates 3 STARS (hold)

Analyst: Robert Gold

A Delaware federal court rules that Medtronic's S7 and Driver coronary stents infringed the patents on stents developed by Guidant and Boston Scientific. Medtronic will appeal the ruling, but we are concerned about its ability to complete development of a drug-coated stent based on the Driver. The company also reiterated fiscal 2005 (ending May) revenue and earnings per share guidance of 12% to 14% and 15% growth, respectively. In our view, successful development of a drug-coated stent is a key component for meaningful valuation expansion. Our 12-month target price remains $54.

National Semiconductor (NSM ): Reiterates 3 STARS (hold)

Analyst: Amrit Tewary

National Semiconductor announced a restructuring program aimed at reducing expenses and streamlining manufacturing operations. The actions will result in about $22 to $26 million in severance and related expenses, and will impact 550 positions, or about 6% of the company's global workforce. We believe the restructuring should enable the company to strategically deemphasize its lower-margin commodity businesses. We await further details when the company reports its February-quarter earnings results on March 10th. Our 12-month target price remains $18, based on our p-e and price-to-sales analyses.

Best Buy (BBY ): Maintains 5 STARS (strong buy)

Analyst: Amy Glynn, CFA

Best Buy posted December same-store sales gain of 2.5%, slightly below company guidance and our forecast of 3% to 5%. Like Circuit City said yesterday, traffic was down from last year. But Best Buy was able to increase its average ticket due, in our view, to strong consumer interest in digital products and the success of its customer-centricity stores. Best Buy's same-store sales gain compares to Circuit City's 5.8% decline. Best Buy keeps its February-quarter same-store sales guidance of 3% to 5%, but sees the low end of the range, and expects earnings per share of $1.56 to $1.66. We will update after Best Buy's 11:30 a.m. conference call.

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