S&P Keeps Buy on Disney

Plus analysts' opinions on Target, Wal-Mart, and more

Walt Disney Company (DIS ): Reiterates 4 STARS (buy)

Analyst: Tuna Amobi, CFA, CPA

March-quarter earnings per share of 32 cents before a one-cent net one-time gain, vs. 26 cents, is a penny above S&P and Street estimates. We think results show steady improvement at theme parks, positive surprise at film studio, and contributions from ABC, partly offset by ESPN deferred revenues. After second-quarter call, we think fundamentals are intact, and theme parks last week began 50th anniversary celebrations through Oct. 6. We see growth opportunities on new digital outlets and more Asian expansion, with balance sheet likely remaining conservative. Our 12-month target price, on discounted-cash-flow and sum-of-the-parts, remains $32.

Target Corp. (TGT ): Reiterates 4 STARS (buy)

Analyst: Jason Asaeda

Target posted April-quarter earnings per share of 55 cents, vs. 43 cents, beating our estimate by a penny. Same-store sales rose 6.2% on top of year-ago 7.3%, and gross margins widened on improved markups. Encouraged by these results, we continue to project fiscal 2006 (ending January) revenues of $52.2 billion. We see customers responding favorably to better in-stock levels, an attractive mix of consumables and more discretionary-purchase fashion apparel and home furnishings, and a stronger value message. We are lifting our fiscal 2006 (ending January) earnings per share estimate by a penny to $2.59. Our 12-month target price remains $57.

Wal-Mart (WMT ): Reiterates 5 STARS (strong buy)

Analyst: Joseph Agnese

Wal-Mart posted April-quarter operating earnings per share of 55 cents, vs. 50 cents, a penny below our expectations. Total sales rose 9.5% on U.S. comp-store sales increase of 2.9%, in line with our projection. Margins narrowed more than we expected as unseasonable weather and higher gas prices negatively impacted sales and leverage. However, we see improvement in second half of fiscal 2006 (ending January) as comparisons ease. As a result, we are lowering our July-quarter estimate by 5 cents, to 65 cents, and our fiscal 2006 estimate by only 4 cents, to $2.66. We are lowering our target price by $3 to $59, based on updated discounted-cash-flow and p-e analyses.

3M Co. (MMM ): Reiterates 3 STARS (hold)

Analysts: Anthony Fiore, John Hingher

3M agrees to acquire CUNO Inc., a manufacturer of filtration products, for $72 per share or a total of about $1.35 billion including $60 million of net debt, in an all-cash transaction. The acquisition is subject to regulatory and shareholder approvals and is expected to close in the third quarter. We believe that the deal represents a good fit and creates a solid business platform for 3M in the $30 billion filtration market. Our 2005 earnings per share estimate remains $4.20 and our 12-month target price continues at $80, or 19 times that estimate.

AmeriTrade Holding (AMTD ): Reiterates 3 STARS (hold)

Analyst: Robert Hansen, CFA

AmeriTrade's Board of Directors today confirmed that the company is not for sale. Given that the three members of the Ricketts family serving on the company's eight-member Board collectively own nearly 26% of the outstanding shares, we think a takeover is highly unlikely. We do believe industry consolidation is likely, and view potential synergies as significant, but see AmeriTrade as an acquirer. We still estimate fiscal 2005 (ending September) earnings per share at 80 cents, and our 12-month target price remains $14, or nearly 18 times that estimate. With the shares up about 25% so far in May, we view valuation as appropriate.

Sabre Holdings (TSG ): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Sabre agrees to acquire lastminute.com, a European provider of online travel services, for 577 million British pounds ($1.1 billion at 1.87 dollars per pound). We believe the transaction is reasonably valued and makes strategic sense for Sabre, and should enable it to become the largest provider of leisure travel in Europe, where we believe it has less compelling offerings that some competitors. Our earnings per share estimates and 12-month target price of $21 remain unchanged. We foresee consummation of the transaction by July 2005, pending approval by lastminute.com shareholders.

Lockheed Martin (LMT ): Reiterates 3 STARS (hold)

Analyst: Robert Friedman, CPA

Despite news of the Pentagon's decision to restore Lockheed Martin's C-130J transport plane to the military budget, we are leaving our discounted cash flow model's long-term free cash flow assumptions as they are. Although the C-130J is a high-profile program for Lockheed Martin, we do not believe that annual C-130J sales and earnings will make a material contribution to Lockheed Martin's large revenue and earnings base. Given our assessment of sluggish long-term defense spending growth and mediocre business economics, we continue to project 6.0%-7.5% 10-year free cash flow growth rates and 12% to 15% return-on-equity.

Bear Stearns (BSC ): Reiterates 5 STARS (strong buy)

Analyst: Robert Hansen, CFA

Bear Stearns, at a conference, highlights its high return on equity, low earnings volatility, and improving margins. We think fixed income remains healthy as the firm continues to diversifiscal, notably into credit, interest rate, and mortgage servicing. We see continued growth in prime brokerage, a rebound in risk arbitrage, improved profitability in global clearing, and higher merchant banking gains. We think Bear Stearns will need to work harder to attract private-client brokers in order to reach goal of 650, up from under 500 now. Our 2005 earnings per share estimate remains at $10.00 and our target price at $130.

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