S&P Boosts Saks to Buy

Plus: Analyst opinions on CVS and Cisco Systems

Saks (SKS)

Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Jason Asaeda

Our upgrade follows the stock's recent decline. Saks posted an impressive 11.1% same-store sales gain in December, well above our 8.5% estimate. We think reported sales strength across major merchandise categories reflects favorably on the company's ability to deliver compelling luxury-focused assortments to its customers, which we see as critical to Saks Fifth Avenue's turnaround. Given strong sales momentum and our expectation of improving merchandise margins and cost structure, we reiterate our fiscal 2007 (ending January) EPS estimate of 21 cents, and fiscal 2008's estimate of 45 cents. Our target price is $21.


Reiterates 5 STARS (strong buy)

Analyst: Joseph Agnese

CVS reported December that comparable-store sales rose 8.5%, above our 7.5% forecast. Comparables in both pharmacy and non-pharmacy products were better than we had projected. We are raising our fourth quarter EPS estimate by 2 cents, to 42 cents, based on better-than-expected sales performance and on our expectation of margin benefits from increased generic drug sales. Although we believe the valuation may be restricted for the near term by risks associated with CVS's agreement to acquire Caremark (CMX), we are maintaining our 12-month target price of $40, based on discounted cash-flow and p-e analyses.

Cisco Systems (CSCO)

Reiterates 3 STARS (hold)

Analyst: Ari Bensinger

Cisco agreed to acquire IronPort Systems, a provider of messaging security appliances, for $830 million in cash and stock. We believe the size of the deal, one of the larger of Cisco's acquisitions over the past five years, underscores the big role that security will play in the networking arena, particularly in relation to critical enterprise email and messaging content. In our view, the proposed acquisition plays directly into Cisco's strength of selling a broad, integrated networking platform with switching, wireless, security, and other capabilities together in a common architecture.

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