S&P Boosts Lilly, Cuts Adobe

Plus: Analysts downgrade CBRL Group, upgrade Kohl's, and comment on H-P's disappointing guidance

Eli Lilly (LLY ): Upgrades to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Herman Saftlas

We think Lilly is the best-positioned company in the big pharma group, based on our view of its solid portfolio of growing drugs, no major patent expirations until 2011, and robust pipeline that we think contains about half a dozen potential blockbusters. Trading at modest p-e premium to peers on option-adjusted basis, we think Lilly is attractively valued, given our projected p-e-to-growth ratio of 1.8, versus 2.5 for the sector, and what we view as Lilly's underappreciated pipeline. We are raising our target price by $3 to $65, based on our revised discounted cash-flow assumptions.

Adobe Systems (ADBE ): Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Scott Kessler

We think risk-reward considerations warrant a less positive opinion on these shares, which are up 30% since mid-September. Earlier this month, Adobe Systems completed the acquisition of Macromedia and announced new software bundles from the combined company. We think these actions eliminated some negatives and uncertainties but are largely priced into its shares. However, we see the potential for integration issues. We are also cutting our fiscal year 2006 (ending November) earnings per share estimate (EPS) to $1.00 from $1.20, reflecting projected stock options expense. Adobe Systems is scheduled to report November quarter results on Thursday Dec. 15.

Hewlett-Packard (HPQ ): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

H-P's guidance at a Dec. 13 analyst meeting for a fiscal 2007 (Oct.) revenue rise of 4%-6% was disappointing to us. We had expected acceleration from fiscal 2006 levels. We note that while its target fiscal 2007 operating margin was a bit above our model, we had expected a more material improvement in personal systems and enterprise business vs. fiscal 2005 fourth quarter levels. Even so, we are upping our fiscal 2007 estimate by 15 cents to $2.00, on higher non-operating income, a lower tax rate, and fewer shares outstanding. At 1 times price/sales, near peers, we view the stock as fairly valued, with bottom-line opportunities against top-line headwinds

CBRL Group (CBRL ): Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Dennis Milton

Same-store sales have fallen significantly at Cracker Barrel in the first four months of fiscal year 2006 (ending July.) We are concerned that higher fuel prices and a sluggish Midwest economy are having a stronger negative impact on customers than previously expected. We are lowering our fiscal year 2006 EPS estimate to $2.21 from $2.43, and our 12-month target price to $34 from $38, to reflect lower sales projections. At 15 times our calendar 2006 EPS forecast, shares are at a premium to family dining peers.

Enzo Biochem (ENZ ): Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Jeffrey Loo, CFA

October quarter loss of 10 cents vs. EPS of 21 cents is 5 cents wider than our estimate. Clinical lab sales improved modestly but sales in life sciences fell, as Enzo Biochem remains in disputes with former distributors. We are disappointed by the slow pace of life sciences sales; we expected better traction given that it has been about 18 months since Enzo Biochem began its direct sales force. We see sluggish sales in this unit. Separately, we are concerned about the slow pace of clinical trials for various compounds in the therapeutics units. Our 12-month target price falls by $5 to $16.

Liberty Property Trust (LRY ): Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Robert McMillan

Our hold opinion is based on total return. After recent gains, the shares of Liberty Property Trust have passed our 12-month target price of $42, which we are maintaining. Although we expect operating trends for Liberty Property Trust to continue to improve, driven by expanding economic growth and rising demand for industrial space, we think the shares are fairly valued and would not add to positions. We are keeping our 2005 and 2006 per-share fund from operations estimates of $3.22 and $3.28, respectively. With a 5.7% dividend yield, we believe Liberty Property Trust shares are worth holding.

Kohl's (KSS ) : 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Jason Asaeda

In our view, Kohl's has proven itself capable of delivering newness sought by customers in fiscal year 2006 (ending January). We see stronger sales in fiscal year 2007, supported by a continued focus on more exclusive, higher quality merchandise and better tailoring of assortments to regional market preferences. We also see margin expansion driven by efforts to flow merchandise more frequently and closer to the time of sale. With improving company performance and above-peer average earnings per share growth of 16% projected over the next five years, as well as our 12-month target price of $58, we view shares as attractive.

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