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|  | MARCH 8, 2005
 S&P STOCK PICKS & PANS S&P Upgrades Health Care Sector Analyst Robert Gold says investors should emphasize the managed care, facilities, and equipment groups. Plus: Opinions on TI, eBay, and more S&P Health Care Sector: Upgraded to overweight from marketweight Analyst: Robert Gold, S&P sector group head To reflect our bullish stance on the non-pharmaceutical areas of health care, we are revising our health care sector recommendation. We believe investors can benefit by emphasizing subcategories such as managed care, facilities and equipment. Our top HMO selections include 5 STARS (strong buy)-recommended Aetna (AET ), Coventry Health Care (CVH ), Humana (HUM ), PacifiCare (PHS ), and WellPoint (WLP ). In equipment, we favor 5 STARS-ranked Zimmer Holdings (ZMH ), Kinetic Concepts (KCI ), St. Jude Medical (STJ ), Waters Corp. (WAT ), and Cooper Cos. (COO ). Our top facility picks include Triad Hospitals (TRI ) and Community Health (CYH ), each ranked 5 STARS. At Mar. 4, health care represented 12.6% of the market cap of the S&P 1500 index. Texas Instruments (TXN ): Reiterates 3 STARS (hold) Analyst: Amrit Tewary In its first-quarter mid-quarter update, Texas Instruments lowerered the upper end of its sales guidance range and now sees $2.91 billion to $3.03 billion for the quarter. The mid-point of the new range suggests a 6% sequential decline in first-quarter sales. The reduced sales guidance is primarily due to lower-than-expected demand for DLP products used in televisions and projectors. On slightly lower sales and margin expectations, we are trimming our first-quarter earnings per share estimate to 23 cents from 24 cents, and full 2005's to $1.07 from $1.11. We are keeping our 2006 estimate at $1.16, and our target price at $30, based on our p-e and price-to-sales analyses. eBay (EBAY ): Reiterates 3 STARS (hold) Analyst: Scott Kessler The New York Times recently ran two negative articles on eBay. Sunday's piece focused on the effect recent fee increases are having on eBay sellers, including 7,000 of eBay stores having closed since the mid-February changes. We estimate year-to-date closures at some three to four times this amount. eBay had about 161,000 stores at the end of fourth-quarter. Monday's story was about eBay's vulnerability to phishing scams, where fraudulent e-mails are used to obtain personally sensitive information such as passwords. Given notable uncertainty and negative sentiment, we remain neutral on eBay. Intel Corp. (INTC ): Reiterates 3 STARS (hold) Analyst: Amrit Tewary An Associated Press report says that Japan's Fair Trade Commission has issued a warning to Intel, demanding that it stop curbing competition in microprocessor market by pressuring Japanese clients to buy its chips. Since we are not privy to Intel's contracts with customers, we have no way of evaluating substance of the charges. We expect the company to issue a response to the warning in the near future. We think Intel may choose to reword a few clauses in its contracts to appease the Japanese watchdog. But, it may choose to fight the charges and go through a lengthy appeals process. Fannie Mae (FNM ): Maintains 2 STARS (sell) Analyst: Mark Hebeka, CFA Fannie Mae announced that it has entered into a supplemental agreement with OFHEO in an attempt to address many of the issues that have been under investigation by regulators. Major topics of the agreement include the segregation of duties between Fannie Mae's CEO and chairman of the board, and enhanced internal controls on compliance and ethics functions. While we see these agreements as a step in the right direction, we are disappointed by the lack of specifics, and believe the company still has a long road ahead of it. We are keeping our 12-month target price at $57. Circuit City (CC ): Maintains 3 STARS (hold) Analyst: Amy Glynn, CFA Circuit City's board rejects Highfields Capital's $17 per share takeover bid, adding that exploring other sale alternatives would not be in the best interest of shareholders. In response, Highfields stated its continued interest in working with management to maximize the value of its CC investment. However, we do not think Highfields will come back with a higher bid at this point. Circuit City is working on a number of initiatives to turn around its operations, but we think the company continues to struggle for market share, which we see as evidenced by choppy same-store sales trends. MetLife Inc. (MET ): Maintains 3 STARS (hold) Analyst: Gregory Simcik, CFA Reinsurance subsidiary Reinsurance Group files $1 billion mixed security registration shelf with SEC, including a possible secondary offering of MetLife's stake in Reinsurance Group. We believe MetLife holds a 52% stake ($1.4 billion at current Reinsurance Group share price) and may look to sell some shares, in addition to New York City real estate holdings, as part of the announced asset sales of up to $3 billion related to the recent Traveler's Life acquisition. With Reinsurance Group shares currently trading at roughly 12.5 times 2004 operating earnings per share, vs. 11.6X times for MetLife, we believe a sale of Reinsurance Group shares makes sense. McDonald's (MCD ): Reiterates 4 STARS (buy) Analyst: Dennis Milton McDonald's brand same-store sales increased 1.6% in February, reflecting growth of 4.6% in the U.S. and 1.7% in the Asia-Pacific/Middle East/Africa region, and a 3.4% decline in Europe. These results are stronger than we expected, given difficult comparisons from 2004. We are raising our 2005 earnings per share estimate by a penny to $2.08, and our 12-month target price by $2 to $38 to reflect strong sales trends. At 16.5 times our 2005 earnings per share estimate, shares are in line with peers. We believe McDonald's strong sales momentum and superior product development capabilities warrant a premium.  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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