S&P Boosts Coach to Strong Buy

Adobe Systems stays at buy, plus analysts' opinions on Cisco Systems, Research in Motion, and more

Coach (COH ): Upgrading to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Marie Driscoll, CFA

June-quarter earnings per share of 25 cents, vs. 17 cents, is 1 cent above our estimate. U.S. retail growth accelerated again. Coach's same-store sales rose 22%, after March-quarter's 19.3% and December-quarter's 16.5%. We are enthusiastic about Coach's new products, including baby, work, and special occasion bags. We see 5-year earnings growth rate at 25%, driven by store openings, international expansion, and new usage occasions. We are raising our fiscal year 2006 (June) estimate by 5 cents to $1.30, vs. fiscal year 2005's $1.00 and Coach's $1.24 guidance. We are raising our target price by $5 to $44, 34 times our fiscal year 2006 estimate, against a 3-year average forward p-e of 29.

Adobe Systems (ADBE ): Reiterates 4 STARS (buy)

Analyst: Scott Kessler

In its scheduled intra-quarter update, Adobe affirms its August-quarter guidance for $470 million to $490 million in revenues and 25 cents to 27 cents in earnings per share. ADBE says it continues to experience solid demand for its Acrobat and Creative Suite offerings in its major geographies. Our forecasts remain for $484M in revenues and $0.26 in EPS. We think some investors might be disappointed that ADBE is not more bullish. However, we think Aug-Q's seasonality and the planned purchase of Macromedia (MACR 39.90 ) , which we expect to close by November, pending approvals, contributed to its guidance.

Comcast (CMCSA ): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Second-quarter earnings per share of 19 cents, vs. 12 cents, was 5 cents and 4 cents above our and Street estimates. We view the results as mixed, as EPS upside gained from lower than projected depreciation and amortization, with higher than expected basic losses of 77,000, strong digital adds of 284,000, and relatively modest data adds of 297,000. On the brighter side, cable OCF margins of 40.8% set a new mark, we think, on additional gains from the AT&T Broadband deal. Comcast affirms outlook for 2.5 million revenue-generating units in 2005, 14%-15% EBITDA growth, and $2.6 billion to $2.8 billion free cash. This morning's call could provide new details on Adelphia plans.

Cisco Systems (CSCO ): Reiterates 5 STARS (strong buy)

Analyst: Ari Bensinger

Ahead of Cisco's July-quarter earnings report scheduled for Aug. 9, we project earnings per share of 25 cents. We forecast sales advancing 5% sequentially to $6.5 billion, driven by strong demand for routers, IP telephony, security, and wireless products. Reflecting more pronounced seasonality due to shortened lead times, we expect Cisco to guide October-quarter sales growth flat to down 2%. While seasonality may create quarterly sales fluctuations, we prefer to focus on yearly growth, and are confident Cisco can meet its long-term target for 10%-15% annual sales growth over the next 3 years.

Northwest Airlines (NWAC ): Downgrades to 1 STAR (strong sell) from 2 STARS (sell)

Analyst: James Corridore

With the shares up some 36% from their 52-week low, we do not think the stock is appropriately pricing in the risk of bankruptcy we see. Northwest has not made progress in securing cost cuts from mechanics and flight attendants, is facing a strike from mechanics, and is likely to see significant cash burn in the second half. We think a Chapter 11 bankruptcy filing is an increasing possibility over the next 12 months. We are keeping our 12-month target price at $3, which represents potential 41% downside from current levels. We think the risks are too high to hold the stock.

Research in Motion (RIMM ): Maintains 4 STARS (buy)

Analyst: Ken Leon, CPA

Reuters reports that a U.S. Court of Appeals reverses some infringement findings made by a lower court against Research in Motion, and sent the NTP Inc. case back for review. Research in Motion had previously said it would stand behind its prior settlement to pay $450 million under a March 2005 agreement that NTP Inc. now disputes. In June, Research in Motion said it could offer the BlackBerry service in the U.S. market with a "modified" platform that would avoid the five patents that are at issue. Despite these legal uncertainties, we see Research in Motion as attractive, based on its faster growth than peers.

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