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Get Four
|  | MAY 24, 2005
 S&P STOCK PICKS & PANS S&P Cuts Adobe, Macromedia to HoldPlus: analysts' opinions on Genentech, PalmOne, GameStop, and moreAdobe Systems (ADBE ) and Macromedia (MACR ): Downgrading to 3 STARS (hold) from 4 STARS (buy) Analyst: Scott Kessler Since closing price as of Apr. 18, the day Adobe announced the proposed all-stock acquisition of Macromedia, Adobe shares have risen some 17% and are now close to our discounted cash flow (DCF)-based 12-month target price of $34. Likewise, Macromedia shares have appreciated about 17% and are now close to our 12-month target price of $47. We continue to believe that the pending transaction, which we expect to be completed by November subject to necessary approvals, makes strong strategic sense. However, we see Adobe stock as fully valued with a p-e of 30 and p-e-to-growth ratio of 2.0, based on our fiscal year 2005 (November) earnings per share estimate. We note that Adobe's 2-for-1 split took effect today. Raymond James Financial (RJF ): Upgrading to 4 STARS (buy) from 3 STARS (hold) Analyst: Robert Hansen, CFA Raymond James posts April securities commissions and underwriting activity that are relatively flat with last year, limited, in our view, by weak equity markets. However, we expect a rebound in trading volumes in fiscal year 2006 (September), and are impressed with RJF's growth in client assets and assets under management. We are raising our fiscal year 2005 earnings per share estimate to $1.95 from $1.85 and fiscal year 2006's to $2.20 from $2.15, but keeping our 12-month target price at $32, or nearly 15 times our fiscal year 2006 EPS estimate and a slight premium to peers. We like RJF's competitive position, and view its current valuation as attractive. Genentech (DNA ): Reiterates 5 STARS (strong buy) Analyst: Frank Dilorenzo, CFA Genentech announces preliminary Phase III (MARINA study; 716 patients) data of Lucentis to treat age-related macular degeneration. 95% of Lucentis patients had less than 15 letter loss in visual acuity at 1 year compared to 62% in the control arm. We consider the data, although preliminary and not fully comparable, to be superior to Eyetech Pharmaceuticals' (EYET ) Macugen and expect Lucentis to eclipse Macugen as a market leader. We assume Lucentis approval by the first half of 2007. We still see 2005 earnings per share at $1.13 and 2006 at $1.60. On revised net present value (NPV) analysis, we are raising our 12-month target price to $93 from $90. PalmOne (PLMO ): Reiterates 3 STARS (hold) Analyst: Megan Graham-Hackett PalmOne announced that it renewed its Palm OS licensing agreement from PalmSource (PSRC ) and that it has acquired rights to the Palm brand. The licensing agreement involves royalty payments to PalmSource of $148.5 million. PalmOne is also paying $30 million to PalmSource to buy its 55% share of the Palm trademark, to be paid over the next three and a half years; PalmOne will change its name to Palm Inc. Neither move is a surprise to us, and we believe PalmSource's lack of traction in signings to the Palm OS was a catalyst. We view PalmOne shares, trading below peer average on price-to-sales and price-to-book value metrics, as worth holding. GameStop (GME.B ): Maintains 3 STARS (hold) Analyst: Amy Glynn, CFA (Update) In our view, GameStop in its April-quarter conference call expressed a very positive outlook on industry, partly on expected release of new game consoles. We expect hardware strength to pressure margins, but think cost control should partly offset. We are raising our fiscal year 2006 earnings per share estimate by 1 cent to $1.39 and our 12-month target price by $5 to $30 because we think strong product releases and potential benefits of pending acquisition of Electronic Boutique (ELBO ), subject to approvals, warrant a higher p-e. But with it trading near our raised target price, we would not add to positions. Williams-Sonoma (WSM ): Reiterates 3 STARS (hold) Analyst: Michael Souers Williams-Sonoma posts April-quarter earnings per share of 22 cents, vs. 18 cents, 2 cents higher than our estimate. Revenues rose 12%, including comp-store sales growth of 5%. EPS was boosted by a 120 basis-point improvement in gross margin and by share buybacks. Separately, WSM announces additional stock repurchase authorization of 2 million shares, which should buoy future bottom-line growth. We are raising our fiscal year 2006 (January) and fiscal year 2007 EPS estimates to $1.88 and $2.18, from $1.85 and $2.12, respectively. We are also increasing our 12-month discounted cash flow (DCF)-based target price to $40 from $38.  All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
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