S&P Keeps Strong Buy on Dell

Plus analysts' opinions on SanDisk, Fairchild Semiconductor, and more

Dell Inc. (DELL ): Reiterates 5 STARS (strong buy)

Analyst: Megan Graham-Hackett

Dell reaffirmed guidance for April-quarter revenues and earnings per share, in line with our model, but now expects to spend $2 billion to buy back stock in the quarter, more than double its prior guidance. Based on day one of its analyst meeting, we believe printers are growing stronger than our original estimate, but Dell is getting stretched in services. As Dell becomes even more disciplined in pursuing only very profitable growth areas, in our opinion, we see 16%+ revenue growth over the next two years, down marginally from fiscal 2004 (ending January) through fiscal 2005. However, we still view this growth level as attractive vs. peers.

SanDisk Corp. (SNDK ): Reiterates 3 STARS (hold)

Analyst: Richard Stice

We believe SanDisk is well positioned to benefit from the expanding consumer devices market. In the fourth quarter, SanDisk derived nearly two-thirds of its revenue from the digital camera market, which rose by 36% during 2004, according to research firm IDC. While we expect shipment growth to moderate in 2005, we think SanDisk's revenues will be aided by a more diversified product line. We are raising our 12-month target price to $29 from $25, based on our updated discounted-cash-flow and relative valuation metrics. But we would not add to positions, given that we expect more aggressive pricing by competitors.

Fairchild Semiconductor (FCS ): Reiterates 3 STARS (hold)

Analyst: Amrit Tewary

Fairchild announced that Dr. Mark Thompson, currently an executive vice president in its Manufacturing and Technology Group, will succeed Kirk Pond as President and CEO on May 4. Pond will remain chairman of the board, and Thompson's agreement provides for him to be elected to the board. We believe Thompson has the necessary background to be an effective leader at Fairchild. Also, although the changes will result in a net addition of one affiliated director (including former executives) to the board, we view favorably from a corporate governance standpoint the separation of the CEO and chairman positions.

Computer Associates (CA ): Maintains 3 STARS (hold)

Analyst: Zaineb Bokhari

Computer Associates agrees to acquire a provider of network service management software Concord Communications for $350 million, composed of $17 cash per Concord share and the assumption of $20 million of debt. Subject to approvals, the deal values Concord at about 3.3 times 2004 sales and is expected to close in the next three to four months. Computer Associates expects this acquisition to be neutral to fiscal 2006 (ending March) earnings per share and slightly accretive in fiscal 2007. Concord had about $69 million in cash on its balance sheet at Mar. 31 and about 640 employees. We will revisit our estimates for Computer Associates following its morning conference call today.

Bed Bath & Beyond (BBBY ): Reiterates 5 STARS (strong buy)

Analyst: Michael Souers

February-quarter earnings per share of 59 cents, vs. 47 cents is 4 cents better than our estimate. Revenue growth of 13%, including same-store-sales growth of 5.1%, slightly exceeded our forecasts. While most competitors saw flat to shrinking margins as a result of intensifying competition and promotional markdowns, Bed Bath & Beyond's operating margin expansion of 150 basis points was remarkable, in our view. However, we are adjusting our fiscal 2006 (ending February) earnings per share estimate to $1.90 from $1.92 due to the inclusion of stock option expense of 7 cents. We are initiating a fiscal 2007 estimate of $2.17, and raising our target price to $49 from $45.

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