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Get Four
|  | JANUARY 27, 2004
 S&P STOCK PICKS & PANS S&P Says Buy Texas Instruments Also: analysts' opinions on Xerox and Novellus. Plus more... Texas Instruments (TXN ): Maintains 5 STARS (buy) Analyst: Thomas Smith The chipmaker reported fourth-quarter earnings per share of 20 cents (before a 7 cents gain on a sale and a 2 cents tax benefit), vs. a loss per share of 34 cents, which was a penny above S&P's estimate. Revenues rose 29% from 2003, and 9% from the third quarter, driven by record sales to wireless markets. The semiconductor book-to-bill ratio rose to 1.12. S&P is raising the 2004 earnings per share estimate to 97 cents, from 95 cents, and is upping the 2005 estimate to $1.35, from $1.30. Applying the present price-earnings of 33 (based on S&P's 2004 earnings per share estimate) to S&P's 2005 estimate indicates price potential to $45, but S&P's price-sales analysis indicates a bit less potential, Thus, the 12-month target price is $42. Xerox (XRX ): Maintains 3 STARS (hold) Analyst: Richard Stice Copier giant Xerox posted fourth-quarter earnings per share of 19 cents, before a 3 cents benefit from reduced litigation reserve, vs. a year-ago earnings per share of 1 cent. Results were 3 cents above S&P's estimate. Revenues rose 1%, including a 6-percentage-point currency benefit. Equipment sales rose 11%, with the majority generated by products launched in the last two years. But gross margin narrowed as a result of higher production costs, a less favorable business mix, and pricing pressures. Xerox generated fourth-quarter cash flow from operations of close to $1 billion. Novellus Systems (NVLS ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate) Analyst: Richard Tortoriello Novellus posted fourth-quarter earnings per share of 7 cents, vs. 2 cents, on a 4% sales rise, a penny better than S&P's estimate. Orders rose a strong 28% from the third quarter, above guidance. However, the chip-gear maker sees 8 cents first-quarter earnings per share, which S&P had projected at 11 cents. The company mentioned a noticeable slowing in U.S. demand in the past week, though S&P hasn't heard any similar news from competitors reporting recently. S&P is lowering the 2004 earnings per share estimate by 6 cents, to 76 cents, and trimming the 2005 estimate by 20 cents, to $1.80. In addition, S&P is cutting the 12-month target price to $42, from $50, or about 24 times S&P's 2005 earnings per share estimate, a discount to peers. Cummins (CMI ): Upgrades to 3 STARS (hold) from 1 STAR (sell) Analyst: James Sanders Cummins reported fourth-quarter earnings per share of $1.07, vs. a loss of 34 cents before one-time items, in line with S&P's estimate. The results reflected strong heavy-duty truck sales and an unexpected return to profitability in the company's power generation segment. S&P projects that the replacement cycle in the heavy-duty truck market will be stronger than previously anticipated. As a result, S&P is raising the 2004 estimate to $3.50, from $2.71. Applying Cummins' historic p-e to S&P's 2004 estimate, and blending that with a discounted cash-flow model, provides a new 12-month target price of $54, up from $26. Quest Diagnostcs (DGX ): Reiterates 5 STARS (buy) Analyst: Phillip Seligman Quest's fourth-quarter earnings per share of $1.02, vs. 82 cents, is 2 cents above S&P's estimate. S&P is encouraged by the diagnostic-testing maker's new guidance, which assumes improved volume growth. It now sees 2004 earnings per share of $4.70 to $4.80, up from the previous range of $4.54 to $4.72. It sees 6% revenue growth, up from 5%, and operating cash flow of more than $650 million, up from the prior guidance of $600 million. Quest expects operating margin of 18%, vs. 2003's 16.8%, on a better sales mix and productivity. S&P is bumping the 2004 earnings per share estimate by 8 cents, to $4.80. With an estimated 2004 earnings per share rise above the S&P 500's, S&P think Quest's forward p-e should at least match the index's p-e of 20.5. S&P is raising the 12-month target price by $4, to $98.  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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