S&P Keeps Strong Buy on Web Access Outfits

Plus analyst opinions on Chiron, Cephalon, Steel Dynamics, and more

Web Access/Communications Companies (WEBX ):Reiterates 5 STARS (strong buy)

Analysts: Scott Kessler, Mark Basham

In light of the devastation of Hurricane Katrina, we believe offerings from Web access and communications software providers Citrix Systems( CTXS ) (5 STARS, or strong buy) and WebEx Communications (WEBX ) (5 STARS) have become increasingly relevant. Citrix enables users to remotely connect to office networks and WebEx facilitates online meetings; we believe they are both leaders in their areas. Although we do not expect the hurricane and its related aftermath to necessarily spur demand for solutions from Citrix or WebEx, we do believe there could be some incremental associated benefits.

Chiron (CHIR ): Reiterates 3 STARS (hold)

Analyst: Frank DiLorenzo, CFA

The biopharmaceutical company's board of directors said that Novartis' (NVG ) buyout offer of $40 cash per share is "inadequate." We expect the two sides to negotiate further. Our 12-month target price of $44 on Chiron's stock assumes a modest premium over the initial offer. However, we don't think Chiron has much bargaining power, as Novartis owns about 42% of the company and we do not see any others making an offer for Chiron. In addition, Chiron has operational difficulties and its growth is below peers. At a current price to earnings-to-growth of 1.5 times our 2006 earnings per share estimate, compared to 1.4 times for peers, we think a $44 offer would be appropriate.

Cephalon (CEPH ): Maintains 4 STARS (buy)

Analyst:Frank DiLorenzo,CFA

The biotechnology company submitted an application to the U.S. Food and Drug for approval to market a painkiller tablet for cancer patients, meeting expectations for a third quarter submission. The tablet uses an enhanced absorption technology, OraVescent Fentanyl (OVF). We think approval of OVF is necessary for Cephalon to offset competition that we see as likely by 2007. We are pleased with the progress Cephalon is seen making on the new product front, with its filings going according to plan and its recently announced partnership with McNeil Consumer and Specialty Pharmaceuticals to co-promote Attenace, the biotechnology company's experimental treatment for attention deficit hyperactivity disorder. With a p-e of 13 times our 2006 earnings per share estimate of $3.22, we think Cephalon's shares are attractive. Our 12-month target price stays at $56.

Steel Dynamics (STLD ): Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Leo Larkin

Our downgrade is based on valuation. We are lowering our 2005 earnings per share estimate to $3.75 from $4.50, partly to reflect the news that Steel Dynamics was suspending orders for cold rolled, galvanized and painted steel products due to interruptions of its supplies of hydrogen gas that were caused by Hurricane Katrina. Assuming resumption of supply and higher spot prices in 2006, we are projecting 2006 earnings per share of $3.95. We are maintaining our 12-month target price of $35, but with little upside potential to our target price, we would not add to positions in the stock.

Rohm & Haas (ROH ): Maintains 3 STARS (hold)

Analyst: Richard O'Reilly, CFA

While Rohm & Haas was not directly impacted by Hurricane Katrina, we expect raw material costs to rise in the second half due to hurricane-related industry capacity shutdowns and higher energy prices. We had expected costs for the company to increase from second quarter levels, but now we believe they could be somewhat higher. We are lowering our 2005 earnings per share estimate to $2.75 from $2.85, but keeping our 2006 projection at $3.10. With a more difficult short-term outlook seen for Rohm & Haas, our 12-month target price declines to $46 from $50, assuming a p-e multiple in line with the S&P 500.

Rare Hospitality (RARE ): Raises to 4 STARS (buy) Analyst: Dennis Milton

Rare Hospitality shares fell nearly 10% last week, in our view due to concerns regarding the impact of Hurricane Katrina. We do not believe the hurricane will have a strong effect on the company's operations, given its concentration of restaurants in the Northeast and Midwest, and its relatively low reliance on seafood. We are maintaining our 2005 earnings per share estimate of $1.54, our 2006 estimate of $1.62, and our 12-month target price of $32. At 16 times our 2006 earnings per share estimate, shares are in line with peers. We believe this valuation is attractive, given, in our view, Rare Hospitality's relatively strong growth prospects.

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

Analyst: Tuna Amobi, CPA and CFA

Our discounted cash flow-based target price rises by $2 to $22. Key drivers that we think could help shares break 3-plus year resistance of $20 include imminent cable intial public offerings (post-Adelphia), strong TV DVD pipeline/film slate (including a fourth quarter Harry Potter sequel) and easier comparables at rival film and cable networks. Upside could also emanate from increases or acceleration of a $5 billion stock buyback and/or newly-set $1 billion annual dividend. We see continued erosion of AOL's narrowband base, but think the beta test of new AOL.com portal is tracking well. Overhang from government probes and related litigation seem to be dissipating.

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