S&P Downgrades ImClone to Hold

Plus analysts' opinions on Harley-Davidson, McDonald's, and more

ImClone (IMCL ): Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Frank DiLorenzo, CFA

ImClone will delay filing of Erbitux for head and neck cancer to the end of 2005, from the second quarter. We remain positive on Erbitux for this use, but see limited catalysts for ImClone in the interim. Based on analysis of IMS Health data, we are lowering our first-quarter Erbitux U.S. sales forecast to $94 million from $99 million, and full fiscal 2005's to $420 million from $464 million. We see new competition from Abgenix's panitumumab, if approved, in 2006. We are lowering our 2005 earnings per share estimate to $1.03 from $2.00 but raising 2006's to $2.03 from $1.73. We are cutting our 12-month target price by $13 to $42 on our diminished view of Erbitux.

Harley-Davidson (HDI ): Maintains 3 STARS (hold)

Analyst: Tom Graves, CFA

Harley-Davidson shares are down sharply this morning after the company guides for full 2005 earnings per share below estimates. Although it reports first-quarter earnings per share of 77 cents vs. 68 cents, topping our estimate by 4 cents, we are lowering our full-year estimate to $3.25 from $3.35, including 5 cents from expensing stock options, and we look for $3.60 in 2006. In view of Harley-Davidson's $1.4 billion in cash equivalents and marketable securities at Mar. 31, 2005, we are disappointed that it is not placing a larger emphasis on stock repurchase. With our lowered expectations of earnings per share growth, we are lowering our 12-month target price to $56 from $66.

McDonald's (MCD ): Maintains 4 STARS (buy)

Analyst: William Mack, CFA, Dennis Milton

McDonald's brand same-store sales increased 6.8% in March, reflecting growth of 6.8% in the U.S., 6.6% in Europe and 7.3% in the Asia-Pacific/Middle East/Africa region. These results were mostly in line with our expectations, and compare to 5% overall comp-store sales growth in 2004. We are maintaining our 2005 earnings per share estimate of $2.08, and our 12-month target price of $38. At 15 times our 2005 estimate, McDonald's shares are about in line with peers. But we believe a premium is warranted based on our view of the company's strong sales momentum and superior product development capabilities.

Intel Corp. (INTC ): Reiterates 3 STARS (hold)

Analyst: Amrit Tewary

Ahead of Intel's first-quarter results, we see 29 cents earnings per share on sales of $9.3 billion and gross margin of 57%. We think microprocessor demand was fairly healthy during the seasonally soft first-quarter, especially in the notebook space. We also think the company gained flash memory market share from Advanced Micro through competitive pricing. Although shares are trading below historical norms on the basis of p-e and price-to-sales, we believe this discounted valuation is warranted, given what we see as above-average near-term macro risks and our expectation of slower industry growth this year.

BellSouth (BLS ): Maintains 2 STARS (sell)

Analyst: Todd Rosenbluth

Ahead of next week's first-quarter results, we see BellSouth posting earnings per share of 34 cents, vs. 48 cents, including 2 cents for merger-integration costs. We expect revenues will rise 22%, driven by the combination of former AT&T Wireless customers with Cingular Wireless, and the addition of new customers. However, we see EBITDA margins narrowing to 35% from 42% on integration costs and aggressive pricing. We still think the shares are expensive relative to our 12-month target price of $24, and we see wireless integration challenges. BellSouth is the only large telco that has avoided the recently renewed merger trend.

Commerce Bancorp (CBH ): Reiterates 5 STARS (strong buy)

Analyst: Mark Hebeka, CFA

Commerce Bancorp posted first-quarter earnings per share of 45 cents, vs. 38 cents, a penny below our estimate. The company showed continued core deposit growth, with large increases in the New York Metro area. Net interest margin narrowed 12 basis points from fourth-quarter, and decreased 35 basis points year-to-year, attributed by Commerce Bancorp to a flattening yield curve. We have a positive view of the bank's retail strategy as it plans to open 55 to 60 new branches in 2005, including 5 to 10 in the Washington D.C. market. We are keeping our 2005 earnings per share estimate at $1.96, but lowering our 2006 forecast to $2.30 from $2.35. Our 12-month target price remains $40.

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

Analyst: Amrit Tewary

Ahead of first-quarter results, we see earnings per share of 10 cents on a 4% sequential sales decline. We expect gross margin to contract 200 basis points from fourth-quarter levels. We believe Fairchild Semiconductor will guide for a sequential improvement in sales and margins in second-quarter on the strength of a recent pickup in orders and more moderate pricing pressure. We see second-quarter operating earnings per share of 15 cents on a 4% increase in sales over the first quarter, and 65 cents earnings per share in full 2005. We believe the shares warrant their below-peer price-to-sales multiple, in light of the company's above-average debt levels and below-average gross margin.

Inamed (IMDC ): Reiterates 4 STARS (buy)

Analyst: Robert Gold

An advisory panel voted 5 to 4 to recommend that the FDA not approve Inamed'S PMA on silicone breast implants, citing insufficient long-term rupture rate data. We are not surprised, given the problematic data set and we still think the next-generation cohesive silicone gel implants have a higher probability of FDA approval, with possible launch in 2006. We still expect the proposed merger of Inamed And Medicis, which values Inamed at $68 (based on price of Medicis), to close. Our Inamed target price falls by $10 to $75, based primarily on a revised Medicis target of $33.

Siebel Systems (SEBL ): Reiterates 2 STARS (sell)

Analyst: Jonathan Rudy, CFA

Siebel announces that director George Shaheen will replace J. Michael Lawrie as CEO, effective immediately. Mr. Lawrie had been CEO for less than a year. Despite our view of Siebel's recent disappointing execution, we had a favorable opinion of Mr. Lawrie as CEO. We think that this move is negative for the company, as it will likely impact its strategy going forward. With Siebel's disappointing execution, and its stock trading at a premium to peers on a p-e-to-growth basis, we would sell shares despite our view of the company's strong balance sheet. Our 12-month target price is $7.50.

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