S&P Upgrades Chiron

Plus analysts' opinions on GM, Lear, Fairchild Semi, and more

Chiron Corp. (CHIR ): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Frank DiLorenzo, CFA

British regulators cleared Chiron's Liverpool facility to recommence production of Fluvirin. We had assumed clearance and 2005/2006 Fluvirin production of 24 million doses, but we are boosting our forecast to 25 million doses. We see some of upside contingent upon the amount of production from Sanofi-Aventis and the outcome of potential entrance to the market of GlaxoSmithKline. We still estimate 2005 earnings per share at $1.71 and 2006's at $2.07, but we are raising our earnings per share growth rate to 17.9% from 11.5%. Assuming Chiron shares trade to our peer-average p-e-to-growth of 1.4 times, we are raising our target price to $43 from $29.

General Motors (GM ): Reiterates 2 STARS (sell)

Analyst: Efraim Levy, CFA

GM reports that February light-vehicle sales volume declined 13%. Light truck sales fell 9%, while cars lost 17%. The company further cut its first-quarter production schedule and announced projected year-to-year declines in second-quarter production. These moves should hurt supplier sales and profits. We are reducing our 2005 earnings per share estimate to $3.86 from $4.13, and our 2006 forecast to $4.96 from $5.15. We are also lowering our 12-month target price to $32 from $34. Our target price is derived from a combination of our discounted cash flow model and peer comparative and historical p-e analyses.

Johnson & Johnson (JNJ ): Maintains 4 STARS (buy)

Analyst: Robert Gold

In our opinion, the stock's 6% year-to-date gain, compared with 0.2% for the S&P 500, reflects optimism about the pending purchase of Guidant, subject to approvals, particularly ahead of what we anticipate will be a signficant 2005 acceleration in growth within Guidant's ICD business. We think Johnson & Johnson shares are also benefiting from investment capital flowing into the more defensive names in the sector. Our 2005 earnings per share estimate remains $3.40, but we are adjusting our 12-month target price up $5 to $75 to reflect blended discounted-cash-flow, sum-of-the-parts and relative p-e-to-growth inputs.

Fairchild Semiconductor (FCS ): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Amrit Tewary

Fairchild maintains its sales and gross margin guidance for first-quarter. The company still expects a 2% to 6% sequential decrease in sales in the quarter from normal seasonality, and a 200 basis point gross margin contraction. However, given a recent pickup in orders and a moderation in pricing pressure, we now see more robust sequential sales growth starting in second-quarter. We are keeping our first-quarter earnings per share estimate unchanged at 10 cents, but raising our full 2005 estimate to 65 cents from 60 cents. We are also upping our 12-month target price to $18 from $13, mostly on higher p-e and price-to-sales multiple assumptions.

Lear Corp. (LEA ): Reiterates 3 STARS (hold)

Analyst: Efraim Levy, CFA

Shares are sharply lower today after Lear warns it expects roughly breakeven first-quarter results, compared to its prior guidance of 50 cents to 70 cents earnings per share. We our cutting our earnings per share estimate for 2005 to $4.80 from $5.60. We are also lowering our revenue and margin forecast to reflect expected lower North American production at key customers. We think an unfavorable mix shift and higher commodity prices should hurt as well. Based on our 2005 forecasts, using a combination of comparative p-e and discounted cash flow analyses, we are cutting our 12-month target price to $48 from $53.

Eastman Chemical (EMN ): Maintains 3 STARS (hold)

Analyst: Richard O'Reilly, CFA

We are raising our 12-month target price to $62 from $56 based on our higher 2005 earnings per share forecast. We see 2005 earnings per share at $3.50, raised from $3.00, vs. 2004 operating earnings per share of $2.49. We expect the acetate tow unit to be up in 2005 on strong industry fundamentals, compared with our previous projection of a decline from a very strong 2004. Also, polyester resins have achieved price hikes in recent months offsetting high feedstock costs, and we expect continued high single-digit industry volume growth. We expect Eastman to focus on debt reduction, since ratio of debt to capital was 59% as 2004 ended.

American Eagle Outfitters (AEOS ): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Marie Driscoll, CFA

January-quarter operating earnings per share of $1.40, vs. 60 cents beats our estimate by 2 cents, driven by 29% higher comp-store sales and 10.5 point gross margin expansion, as merchandise margin rose 8.8 points and buying and occupancy leveraged. Transactions/store grew over 10%. Brand momentum continues, reflected in 32% higher February comp-store sales. We see incremental productivity gains from markdown procedures, particularly regional markdowns. We are raising our fiscal 2006 (ending January) earnings per share estimate to $3.45 from $3.25, and our target price to $64 from $55, based on peer multiple applied to our fiscal 2006 earnings per share estimate.

Liz Claiborne (LIZ ): Maintains 4 STARS (buy)

Analyst: Marie Driscoll, CFA

Liz Claiborne met our fourth-quarter earnings per share estimate, posting 75 cents, vs. 66 cents on a 16% sales gain. Specialty retail led with a 26% sales rise. For 2004, retail generated 23% of sales and 15% of operating income. We see opportunity for specialty retail productivity, given youthful age of Liz Claiborne's contemporary lifestyle retail brands. The company intends to further differentiate its brands in the consolidating department store channel, and to expand its retail and international businesses. Our 2005 estimate remains $3.15 vs. $2.85, above Liz Claiborne's $3.07 to $3.13 guidance, and our 12-month target price remains $48.

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