S&P Picks and Pans: Activision, BMC Software, Autodesk, Nordstrom, Abercrombie
S&P LOWERS RECOMMENDATION ON SHARES OF ACTIVISION TO HOLD FROM BUY (ATVI%20; 32.80):
Our downgrade is based on valuation. It follows significant price appreciation that has brought shares within 10% of our 12-month target price, which we are keeping at 36 based on a blend of relative metrics. Although we expect sales of Guitar Hero III and Call of Duty 4 to remain strong, we believe year-over-year revenue comparisons becomes more difficult in the second half of 2008 as the company is not scheduled to release any major new video game in the near term. Additionally, we are concerned about a possible slowdown in consumer spending. -J. Yin
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF BMC SOFTWARE (BMC; 36.43):
BMC posts March-quarter operating EPS of $0.55, vs. $0.36, $0.11 above our estimate. Revenues grew 11% to $467 million, $9 million above our forecast. BMC cites strength in business service management unit, improving demand for its mainframe business, and effective cost controls for the better-than-expected results, which were also aided by a one-time tax benefit. We expect BMC to continue gaining market share with the acquisition of Bladelogic, and we are raising our fiscal year 2009 (March) operating EPS forecast by $0.08 to $1.90 and our 12-month target price by 2 to 39, based on our higher EPS outlook. -J. Yin
S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF AUTODESK (ADSK; 40.94):
April-Q operating EPS of $0.44, vs. $0.35, is $0.05 above our estimate. Revenue rose 18% to $599 million, $6.5 million above our forecast, driven by 41% growth in emerging markets, 37% growth in 3D solutions and 7% forex benefit. However, the Americas region was weak, rising 4%. Though we believe ADSK is executing well, we see revenue growth moderating to the mid-teens, reflecting a weaker economy. We are increasing our fiscal year 2009 (January) operating EPS projection by $0.02 to $1.90, based on April-quarter outperformance partially offset by higher stock-based compensation. We are keeping our target price of 49. -J. Yin
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF NORDSTROM (JWN; 37.66):
April-quarter EPS of $0.54, vs. $0.60, meets our estimate. In response to weak sales trends, JWN used markdowns to end the quarter with comparable inventory per square foot down 4%. We expect markdown levels to decline going forward, reflecting more conservative sales planning. And while we believe it will be difficult for JWN to leverage expenses off same-store sales that we project will decline 5%, we look for tight expense controls to provide some margin support. We reiterate our fiscal year 2009 (January) EPS estimate of $2.90 and 12-month target price of 39. -J. Asaeda
S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF ABERCROMBIE & FITCH (ANF; 75.97):
April-quarter EPS of $0.69, vs. $0.65, is shy of our $0.72 estimate. Gross margin expanded 120 basis points, driven by better initial markups. Ecommerce sales rose 44%, 78% internationally. Fixed costs in store, distribution, and MG&A de-levered about 100 basis points each, for a 120 basis points decline in EBIT margin to still-strong 11.3% in tough retail environment. Spending to support newer brands Ruehl, Gilly Hicks continues at $2 million per quarter. Inventory is down 5%/sq. ft., which we see easing markdown risk in July-quarter, when Hollister launches personal care, an extension we see offering incremental sales growth. -M. Driscoll-CFA
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