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American Italian Pasta Company (PLB
): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Anishka Clarke
American Italian Pasta posted June-quarter earnings per share of 65 cents vs. 59 cents, in line with S&P's estimate. Price promotions and trade inventory reductions limited revenue growth to 14%. Core volume growth of 10% and higher cost savings than expected led to a 10% rise in operating profits. S&P views favorably the extension of an exclusivity pact with major food distributor Sysco and the initiation of a three-year, $20 million cost reduction program. On S&P's expectations for double-digit growth in fiscal 2004 (Sept.), S&P views AIPC as attractive at 13 times the calendar 2004 earnings per share estimate of $3.02, a discount to peers.
Barnes & Noble agreed to acquire DirectGroup Bertelsmann's 36.8% interest in Barnes & Noble.com (BNBN
) for $164 million in cash and notes, worth about $2.80 per Barnes & Noble.com share. It expects the transaction to close in 45 days, and to reduce fiscal 2004's (Jan.) earnings per share by 11 cents. S&P is adjusting the fiscal 2004 earnings per share estimate down to $1.79 and is putting fiscal 2005's under review. It remains to be seen whether Barnes & Noble.com will achieve positive cash flow in fiscal 2004, but recent cost cuts are encouraging. With less profit visibility, and with the stock trading at 14 times S&P's fiscal 2004 earnings per share estimate, modestly below the peer average, S&P sees the stock as adequately priced.
Louisiana-Pacific (LPX
): Downgrades to 1 STAR (sell) from 3 STARS (hold)
Analyst: Bryon Korutz
The company's second-quarter earnings per share of 6 cents vs. 5 cents, before one-time items, was 10 cents below S&P's estimate. Results were aided by higher oriented-strand board prices and by volumes in plastic building products, and were partly offset by higher energy and resin costs. S&P is raising the 2003 estimate to 33 cents, from 3 cents, on stronger near-term oriented-strand board prices. Looking further out, S&P sees these prices falling on the end of the stronger home building season and on the 5.3% drop S&P expects in 2004 housing starts. With the stock at 22 times S&P's 2004 earnings per share estimate of 55 cents, above the S&P 500, S&P would sell the shares.
CVS reported second-quarter earnings per share of 49 cents vs. 43 cents, a penny above S&P's estimate. Net sales rose 7.6%, 5.5% at same stores. Margins are benefiting from increased sales of generic drugs and improved inventory management despite a shift in the product mix toward lower-margin pharmacy sales, and increased employee benefits costs. CVS narrowed the 2003 earnings per share guidance range to $1.93-$1.98, from $1.92-$2.00. S&P is raising the 2003 earnings per share estimate to $1.96 from $1.94. At only 15 times that estimate, below peers, and with S&P's estimated long-term growth rate of 11%, S&P believes CVS remains undervalued.
Andrx (ADRX
): Reiterates 4 STARS (accumulate)
Analyst: Herman Saftlas
Andrx posted second-quarter earnings per share of 20 cents vs. a loss of 42 cents, 7 cents above S&P's estimate. Stronger revenue growth than expected, at 51%, was driven by the launches of Taztia XT, an over-the-counter version Claritin D-24, and royalties from generic Prilosec. The bottom line was helped by sharply lower litigation and other non-operating charges. S&P expect second-half earnings per share to exceed the first half, boosted by new products (possibly generic Wellbutrin SR), and manufacturing efficiencies. S&P has a 12-month target price of $27, which assumes a p-e of 22 times S&P's 2004 earnings per share estimate, in line with other specialty drug stocks.
Cox posted second-quarter growth in consolidated revenues and EBITDA of 14% and 20%, respectively. While run rates for high-speed data, digital video, and telephony came in at the lower end of S&P's expectations, this could be partly from seasonality. second-quarter GAAP earnings per share of 19 cents, on 5% more shares, benefited from a $124 million one-time gain on investment in Sprint PCS stock. Cox affirmed the 14%-15% 2003 revenue guidance, and maintains its outlook for positive full-2003 free cash flow. S&P is wary of a potential slowdown in advanced services, but will update its outlook Wednesday afternoon after a conference call.
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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