S&P Keeps Hold Opinion on Autodesk

Analyst Jonathan Rudy says the company's July-quarter results beat his forecasts. Plus: analysts' opinions on Gap, AnnTaylor, and more

Autodesk (ADSK ): Reiterates 3 STARS (hold)

Analyst: Jonathan Rudy, CFA

July-quarter operating earnings per share of 29 cents, vs. 18 cents, is 4 cents above our estimate; revenues of $373 million exceeded our $349 million projection. Autodesk noted particular strength in Asia/Pacific and in Europe/Middle East/Africa regions, growing 39% and 42%, respectively. We are raising our fiscal year 2006 (January) operating EPS estimate to $1.20 from $1.16, and see $1.35 in fiscal year 2007. With our view of a strong balance sheet and solid recent execution, we would hold Autodesk, even though it is trading at a premium to peers on enterprise value/sales. We are raising our 12-month target price to $42 from $38 on relative analyses.

Gap (GPS ): Maintains 4 STARS (buy)

Analyst: Marie Driscoll, CFA

Gap reports July-quarter earnings per share of 30 cents, vs. 21 cents, beating our 29 cents estimate. Merchandise margins fell 180 basis points, driving a 120-basis points gross margin contraction. Soft traffic at all brands tempered results; fiscal year 2006 (January) guidance was cut by 14 cents from $1.30-$1.34. Gap is pursuing many growth avenues, but wrong product at Gap and misses at Old Navy and Banana Republic remain factors, and we expect changes to be slow and incremental. Our fiscal year 2006 EPS estimate falls to $1.32 from $1.45; we see $1.45 in fiscal year 2007. Our 12-month target price drops by $2 to $24, 17 times our fiscal year 2007 EPS estimate.

AnnTaylor Stores (ANN ): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Marie Driscoll, CFA

AnnTaylor posts July-quarter earnings per share of 10 cents, vs. 41 cents. Gross margin contracted 550 basis points, a significant improvement over the first quarter's 740 basis points contraction. AnnTaylor entered into the third quarter with inventories down about 3% per square foot. We see improvement ahead on better pricing and merchandise assortment. We are concerned about cannibalization between AnnTaylor's retail brands. We see AnnTaylor improving competitively and no denim glut. We maintain our fiscal year 2006 (January) EPS estimate of $1.17, setting fiscal year 2007's at $1.40. We are raising our target price to $28 from $24, 20 times our 2007 estimate, a premium to peers based on our view of improving store productivity.

Forest Laboratories (FRX ): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Herman Saftlas

We see Forest Lab's Milnaciprin treatment for fibromyalgia, a severe musculoskeletal condition, as its next potential blockbuster. We expect Phase III data in September. Representing the first treatment for fibromyalgia, we think the drug could generate over $600 million in sales and add 50 cents to EPS in 2010. While Forest Labs still faces a patent challenge to Lexapro, we think new drugs such as Milnaciprin and others should drive credible EPS growth in the years ahead. We are raising our 12-month target price by $9, to $48, based on revised forward EPS and discounted cash flow models.

Audible (ADBL ): Downgrades to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Scott Kessler

We continue to believe in the long-term growth potential of Audible's businesses, and that the shares offer compelling value based on discounted cash flow and relative 2006 PE-to-growth analyses. However, given the relatively small size and emerging nature of the company, we believe associated execution and investment risks are considerable. Thus, even though we are not changing our revenue forecasts, EPS estimates, or 12-month target price of $22, we are downgrading Audible. We believe the upcoming launches of Audible Wireless and Audible Education could be positive catalysts in the third quarter.

Dillard's (DDS ): Reiterates 3 STARS (hold)

Analyst: Jason Asaeda

July-quarter loss per share of 15 cents, vs. 31 cents loss, is narrower than our 25 cents loss estimate. Higher merchandise margins, lower markdowns, and cost savings from the sale of credit card business aided results. Given our view of Dillard's sharper merchandising focus, efforts to tailor assortments to local demographics, and reduced expense structure, we think company fundamentals could further improve. Accordingly, we are lifting our fiscal year 2006 (January) EPS estimate by 15 cents to $1.00, and fiscal year 2007's by 10 cents to $1.15. But our 12-month target price remains $24 on updated discounted cash flow and p-e valuations.

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