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Get Four
|  | JANUARY 10, 2006
 S&P STOCK PICKS & PANS S&P Cuts Genzyme, Ups Media GeneralPlus: Alberto Culver, Public Service Enterprise Group, Fairmont Hotels, and Suez get downgraded, and moreGenzyme (GENZ ): Cuts to 4 STARS (buy) from 5 STARS (strong buy) Analyst: Frank DiLorenzo, CFA Fourth quarter revenue is $722 million, and Genzyme will release full results on Feb. 15. Renagel sales of $111 million are in line, $232 million Cerezyme sales were $9 million below our forecast, and $81 million Fabrazyme sales were $1 million below. The company sees 2006 revenue of $3.1 billion to $3.3 billion, below the $3.37 billion we had projected, and guides for non-GAAP earnings per share (EPS) of $2.65 to $2.75 before about 35 cents stock option expense. Our 2006 EPS estimate of $2.68 includes stock options. While we like current valuation, we are disappointed by guidance and fourth quarter revenue. Our 12-month target price drops $9 to $84. Alberto-Culver (ACV ): Cuts to 3 STARS (hold) from 4 STARS (buy) Analyst: Howard Choe Alberto-Culver agrees to spin off its Sally beauty business to Regis (RGS ). If approved, Alberto-Culver shareholders will receive 0.6 shares of Regis and a $3 special dividend. Our downgrade is based on our view that Alberto-Culver's growth prospects are not as strong without Sally's geographic expansion opportunities. However, we do acknowledge that Alberto-Culver's consumer products unit has come into its own in recent years, with sales and profit margins comparable to Sally. With respectable sales growth but margins below peers, we see Alberto-Culver as a market performer. Our 12-month target price remains $51. AmerisourceBergen (ABC ) : Ups to 4 STARS (buy) from 3 STARS (hold) Analyst: Phillip Seligman AmerisourceBergen raises its fiscal year 2006 (ending September) operating revenue growth target to between 7% and 9% from 6% to 8%, but reaffirmed its $1.98 to $2.13 earnings per share (EPS) guidance. This suggests to us that its drug supply operating margin may be near the low end of its 1.15% to 1.25% target range. Separately, AmerisourceBergen announces plans to acquire a privately held oncology medical education and research provider for $90 million, pending regulatory approval. Assuming a March quarter close, AmerisourceBergen sees the deal adding a penny to fiscal year 2006 (ending September) EPS. Our target price rises by $5 to $47. Media General (MEG ) : Ups to 4 STARS (buy) from 3 STARS (hold) Analyst: James Peters, CFA We forecast above-peer revenue growth rate for Media General of 9.4% in 2006, including our projections for strong online revenue growth, gains from political and Olympic advertising, and growth derived from the company's continued investment in new business initiatives. We also believe fixed cost leverage associated with our higher revenue projection will lead to operating margin expansion of about 90 basis points to 14.4%. On an improving fundamental outlook and with the stock trading 22% below our 12-month target price of $62, we are upgrading our opinion to buy. Public Service Enterprise Group (PEG ): Cuts to 3 STARS (hold) from 4 STARS (buy) Analyst: Justin McCann Although we are raising our target price by $2 to $70, we believe the company's shares are approaching their full valuation. We still expect the planned merger with Exelon (EXC ) to be completed, pending regulatory approvals, by the end of June, and we see Public Service Enterprise Group shares trading in progressively closer sync with those of Exelon as that time frame draws nearer. With shareholders to receive 1.225 shares of Exelon for each Public Service Enterprise Group share, our new target price reflects a projected value of about $57 for Exelon shares at the time of the expected closing. Fairmont Hotels (FHR ) : Cuts to 3 STARS (hold) from 4 STARS (buy) Analyst: William Mack, CFA The shares have appreciated to a level that is nearing our 12-month $45 target price as investors weigh a tender offer by Carl Icahn at $40 per share. We still see better than a 50% probability that a higher bid per share is likely, either from Mr. Icahn or a third party. We note that Mr. Icahn has stated he might be willing to offer a significantly higher price if given access to Fairmont Hotels's books and separately, management has said that it is speaking to other potential partners. We now see Fairmont Hotels as nearly fully valued at 17 times our 2006 earnings before interest taxes depreciation (EBITDA) forecast of about $200 million. Suez (SZE ) : Cuts to 3 STARS (hold) from 4 STARS (buy) Analyst: Michael Wilson We view Suez as fairly valued now at 17.6 times the $1.89 earnings per ADS we see for 2006, a premium to peers. We expect 2006 EBITDA growth to be driven by the company's new optimax cost-cutting program, which we think is on target to trim EUR 550 million by 2006 year-end. Also, Suez's recent acquisition of the remaining shares of Electrabel should sharply reduce minority interest expense, and produce synergies in the longer term of about EUR 350 million. However, Suez's dividend yield lags peers and we think its underperforming water business continues to impede earnings growth.  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.
BW MALL
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