S&P Keeps Buy on Time Warner

Plus analysts' opinions on DaimlerChrysler, Advent Software, and more

Time Warner (TWX ): Reiterates 4 STARS (buy)

Comcast (CMCSA ): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Unconfirmed reports say Comcast and Time Warner have tentatively agreed to buy bankrupt cable company Adelphia for about $18 billion, with $12 billion to $13.5 billion cash plus $4.5 billion to $5.6 billion stock in a new entity to be composed of Adelphia and Time Warner's cable unit. The news is not official, but we view Comcast and Time Warner as auction frontrunners. While the implied bid of $3,400 enterprise value per subscriber seems quite ample, we think a joint bid is consistent with the imminent need to unwind Comcast's 21% stake in Time Warner Cable, and would put Time Warner a step closer to a cable IPO after settlement of the AOL government probe.

DaimlerChrysler (DCX ): Reiterates 3 STARS (hold)

Analyst: Efraim Levy, CFA

DaimlerChrysler wins a legal victory over Tracinda. Tracinda, controlled by Kirk Kerkorian, had sued DaimlerChrysler for fraud in connection with Daimler-Benz's acquisition of Chrysler Corp., and sought $1.35 billion in damages. While the news is positive for DaimlerChrysler, Tracinda has the option of appealing the decision. Our 12-month target price of $47 for DaimlerChrysler is based on our discounted cash flow analysis, and on an economic profit valuation of the core automotive business with investments and the financial services unit valued separately.

Advent Software (ADVSE ): Downgrades to 2 STARS (sell) from 3 STARS (hold)

Analyst: Zaineb Bokhari

After a delayed 10-K and disclosures of errors in earlier filings, we are concerned about Advent's financial controls. We believe future investments will be needed to comply with Sarbanes-Oxley and impacting profit. We are lowering our 2005 earnings per share estimate to 25 cents from 28 cents. Advent trades at a premiums to peers based on p-e and p-e-to-growth, and in line on price-to-sales. We are lowering our target price to $16 from $21, applying 3.1 times price/sales to our 2005 revenue estimate of $166 million. We think this 10% discount to peers is warranted by concerns about weak controls and low profitability.

USF Corp. (USFC ): Reiterates 3 STARS (hold)

Analyst: Anishka West, CFA

USF sees 12 cents to 16 cents first-quarter earnings per share, below our 46 cents forecast, citing a slowdown in the automotive sector, weaker growth than anticipated in the Northeast, and competition in the Southeast. It notes high single-digit less-than-truckload revenue growth and satisfactory performance in truckload and logistics units. We are cutting our 2005 earnings per share estimate to $2.18 from $2.58, and our 12-month target price to $48 from $50, incorporating estimates from our discounted-cash-flow and relative value models, and scenarios reflecting USF's agreement to be acquired by Yellow Roadway, subject to approvals.

Accenture (ACN ): Maintains 4 STARS (buy)

Analyst: Stephanie Crane

Accenture posted February-quarter earnings per share of 35 cents, vs. 32 cents, a penny ahead of our estimate. Revenue rose 15% to $3.8 billion, with strength in consulting, which we view as especially positive. Bookings reached $4.9 billion, and we see Accenture beating its fiscal 2005 (ending August) goals. We note that Accenture's raised guidance for fiscal 2005 includes a reduction in reorganization liabilities, and that February-quarter showed a lower tax rate. We account for these factors in our fiscal 2005 earnings per share estimate, which we are raising by a penny to $1.38. Our 12-month target price remains $30, based on a peer p-e ratio of 19.4 times on our fiscal 2006 earnings per share estimate of $1.55.

Constellation Brands (STZ ): Reiterates 5 STARS (strong buy)

Analyst: Anishka Clarke

February-quarter operating earnings per share of 59 cents, vs. 54 cents, beats our 58 cents estimate. Comparable wine sales rose 18%, reflecting the Mondavi purchase and 25% branded wine growth. We are encouraged by distribution synergies from Mondavi and see the trend continuing in fiscal 2006 (ending February). We think higher marketing will drive strong sales growth but will limit margins. We expect spirits momentum to build but see modest growth in beer volumes in fiscal 2006. We are cutting our fiscal 2006 earnings per share estimate by 4 cents to $3.17 on higher selling, general, and administrative costs, but raising our target price by $5 to $65 on our view of rising sales in our revised discounted-cash-flow model.

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