S&P Boosts Exxon Mobil to Strong Buy

Analyst Tina Vital also raised her earnings forecast and target price for the energy giant. Plus: Opinions on Sungard, Walgreen, and more

Exxon Mobil (XOM ): Upgrades to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Tina Vital

With our view of Exxon Mobil's considerable heavy/sour crude (high sulfur content) conversion capacity, we believe the company will benefit from strong feedstock discounts this year as the demand for light sweet crude (low sulfur content) increases. With global energy demand estimates being raised, we expect another strong year of refining margins, and we believe supply constraints will support prices for the West Texas Intermediate grade of crude above $45 per barrel through 2007. Based on our upwardly revised price and margin projections, we are raising our 2005 earnings per share estimate by 23 cents to $4.87, 2006's by 39 cents to $4.70, and our target price by $7 to $73. (Learn more about Exxon Mobil and other members of the BusinessWeek 50.)

Sungard Data Systems (SDS ): Maintains 3 STARS (hold)

Analyst: Stephanie Crane

Shares are up almost 10% after news of a leveraged buyout for $11.3 billion by a private equity group. This had been alluded to as a possibility last week, driving shares up 10%. Under the plan, holders will receive $36 in cash per share. Sungard Data System's existing bonds in the principal amount of $500 million will remain outstanding. We expect the transaction to be completed in the third quarter, subject to stockholder and regulatory approvals, and current management will remain on board. We are raising our 12-month target price to $36 from $31, using a peer based p-e multiple of 23 times applied to our 2005 earnings per share estimate of $1.57.

Walgreen (WAG ): Downgrades to 3 STARS (hold) from 5 STARS (strong buy)

Analyst: Joseph Agnese

Our downgrade is based on valuation as the shares are approaching our 12-month target price of $49, based on our discounted cash-flow and p-e analysis. February-quarter earnings per share of 48 cents, vs. 42 cents is in line with our expectations. Total sales rose 12%, on a 7.7% rise in comp-store sales, which in line with our view. Operating margins widened, reflecting increased generic drug utilization and improved front-end sales despite higher digital photo lab conversion costs and labor expenses. We believe Walgreen remains on pace to open 365 net new stores in fiscal 2005 (ending August). We are keeping our fiscal 2005 earnings per share estimate at $1.55.

American International Group (AIG ): Maintains 2 STARS (sell): Analyst: Catherine Seifert Unconfirmed media reports indicate numerous AIG executives have been subpoenaed by the SEC in its widening probe of certain reinsurance transactions, including some with Berkshire Hathaway's General Re unit. Other unconfirmed media reports indicate AIG's board may be closer to severing all ties with former CEO. We are encouraged by today's share strength, but we still believe that more revelations could unfold and that near-term visiblity is too low. Our target price is still $54, or 10 times our $5.20 2005 earnings per share estimate before any writedowns.

Nuveen (JNC ): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Robert Hansen, CFA

Nuveen says it expects third-quarter earnings per share to be 42 cents to 44 cents, below our 45 cent estimate, on revenue of about $135 million. We think results were hurt by a decline in performance fees and a rise in share count. The company also announced a secondary offering by St. Paul Travelers, its majority shareholder. We are lowering our 2005 earnings per share estimate to $1.80 from $1.85. But our 12-month target price rises to $35 from $34, about 19 times our 2005 earnings per share forecast, comparable to peers. Given weakness in the shares, down about 11% thus far in 2005, we view their valuation as appropriate.

AmerisourceBergen (ABC ): Maintains 3 STARS (hold)

Analyst: Phillip Seligman

AmerisourceBergen cuts fiscal 2005 (ending September) earnings per share guidance to $3.10 to $3.50 from $4.00 to $4.10 on lower inventory ahead of completion of fee-for-service contracts. The company sees $3.60 to $4.40 earnings per share in fiscal 2006. We are encouraged by the $525 million hike AmerisourceBergen sees in fiscal 2005 free cash flow, boosting flexibility. We are cutting our fiscal 2005 earnings per share estimate by 80 cents to $3.25. Despite share buybacks under way, Medicare drug benefits and new generic drugs, we lack visibility on FFS transitions and are cutting our fiscal 2006 estimate by 65 cents to $4.00. Our 15 times forward p-e is below S&P 500's and our target price remains $60.

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