S&P Stock Picks and Pans

S&P Picks and Pans: Apollo Group, Coach, Schlumberger, CVS Caremark, Best Buy


S&P Stock Picks and Pans January 9, 2009, 12:54PM EST

S&P Picks and Pans: Apollo Group, Coach, Schlumberger, CVS Caremark, Best Buy

Analysts' opinions on stocks in the news Friday

S&P UPGRADES OPINION ON SHARES OF APOLLO GROUP TO BUY FROM HOLD (APOL; 77.22):

Shares are higher in premarket after APOL posts November-quarter EPS of $1.12, vs. $0.83, beating our forecast by $0.16, on an 18% rise in enrollment to 384,900 students (including 26% more new students) and well-controlled costs. We are very impressed with these gains during the difficult economic times, as a good part of APOL's student base is working adults. We raise our fiscal year 2009 (August) EPS estimate by $0.35 to $3.75, and fiscal year 10's by $0.55 to $4.45. We also raise our 12-month target price by $26 to $103, 26 times our calendar 2009 EPS estimate, on what we now view as a merited premium to peers. -M. Jaffe

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF COACH INC. (COH; 18.83):

December-quarter sales of $960 million, vs. $978 million, short of our $1.040 billion estimate. Comp-store sales were down 13%, EBIT margin slipped about 200 bps to 36%, and COH reduces EPS guidance for the quarter to $0.67, vs. year-ago $0.69, below our $0.75 estimate. COH is not immune to consumer spending slowdown, but we see these results as best of class in extraordinary times. We lower our estimates for fiscal year 2009 (June) and fiscal year 2010 EPS to $1.95 and $2.30, from $2.25 and $2.45, and our target price to $30 from $35. We are encouraged by lack of leverage in COH's operating model as shown by modest margin erosion. -M. Driscoll-CFA

S&P MAINTAINS BUY OPINION ON SHARES OF SCHLUMBERGER (SLB; 44.29):

SLB said yesterday it plans to cut 1,000 workers in North America, about 5% of its workforce there, and will also cut some of 65,000 overseas workers, but did not give exact figures. We view this as a sign SLB is not expecting a short-term recovery in demand for oilfield services, although we still expect improvements in 2010. We believe reductions in upstream capex spending in 2009 will be most severe in North America, and given that SLB has less exposure to this region than peers, we expect similar announcements from them as well. -S. Glickman

S&P REITERATES STRONG BUY OPINION ON SHARES OF CVS CAREMARK (CVS; 26.23):

CVS sees 2009 EPS of $2.53-$2.61, below $2.74 we had expected. Pharmacy benefit management margins will be hurt as half of business contracts will be entering least-profitable first year following renegotiation in 2008. Although growth will also be hurt by expansion of health care clinics and integration costs from acquisition of Longs Drug Stores, we believe these moves position the company for accelerated growth in 2010 and beyond. We lower our 2009 EPS estimate by $0.17 to $2.57, and see 2010 EPS of $3.05. We are also reducing our target price by $3 to $33 on p-e analyses. -J. Agnese

S&P MAINTAINS BUY OPINION ON SHARES OF BEST BUY (BBY; 29.65):

BBY's December revenue showed 4% growth, driven by strong overseas sales partly offset by flat domestic revenues. We view single-digit sales growth for BBY as positive, compared to other electronic retailers that we think are likely to post negative holiday sales comparisons. Flat panel TVs and notebook computers showed low double-digit sales growth, while digital cameras and MP3 players posted sales declines. GPS also had significant declines in selling prices. Given BBY is the market leader, we apply a premium-to-peers forward p-e of 14 and maintain our $34 target price. -M. Souers, K. Leon-CPA

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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