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|  | MAY 5, 2004
 S&P STOCK PICKS & PANS S&P Upgrades State Street to Buy Also: analysts' opinions on Caci International and Coke. Plus more.. State Street (STT ): Upgrades to 5 STARS (buy) from 4 STARS (accumulate) Analyst: Evan Momios, CFA We believe increasing interest rates, new client wins, increased cross-selling in Europe, and integration of a business acquired from Deutsche Bank will have a positive impact on earnings per share in the years ahead. We are increasing our 2004 earnings per share estimate to $2.71, from $2.70, and upping 2005's to $3.09, from $3.02. We are raising our 12-month target price by $1 to $63, or 20.4 times our 2005 earnings per share estimate. At 18 times our 2004 earnings per share estimate, compared with 22 times the forward 12-month earnings per share in the past five years, and our positive operating outlook for State Stree, we would purchase the shares. Caci International : Downgrades to 2 STARS (avoid) from 4 STARS (accumulate) Analyst: Massimo Santicchia The stock has moved sharply lower, we think, on the potential negative impact of allegations that its some of its employees may have been involved in the abuse of Iraqi prisoners. Caci has been a major beneficiary of increased spending on national defense, and we estimate that 66% of fiscal 2004 (June) revenue will come from the Department of Defense business. The potential future negative consequences of the allegations, such as loss of business with the Dept. of Defense, prompt us to apply a higher risk premium in our discounted cash-flow model, which now yields a 12-month target price of $40, cut today from $55. Coca-Cola (KO ): Maintains 4 STARS (accumulate) Analyst: Richard Joy Coke named former senior executive Neville Isdell to succeed Doug Daft as chairman and CEO. We view this selection as positive for the company and we believe that Isdell's extensive industry knowledge and history with the Coca-Cola system should lead to a smooth transition. With the uncertainty over who will lead the company now removed, we see Coke as attractive, given strong free-cash flows and a renewed focus on profitable volume growth. Our 12-month target price remains $58, derived from our analysis of discounted free-cash flows and historical relative multiples. Anheuser-Busch (BUD ): Maintains 5 STARS (buy) Analyst: Anishka Clarke Anheuser's purchase of a 29% stake in Harbin Brewery, China's fourth largest, for $3.70 Hong Kong dolars a share, sparked a $4.30 Hong Kong dollar takeover bid proposal by the other 29% stakeholder, SABMiller. Anheuser's move is in keeping with its growth strategy and complements its stake in Tsingtao, China's No. 1 brewer. We think Anheuser can counter SAB's bid, giving it dominant market position, or sell its shares. In our view, a larger position in China's beer market, with its growth rate at about 8%, should provide Anheuser with significant opportunities. Trading below our 12-month target price of $63, we would buy the shares. Charter One (CF ): Reiterates 3 STARS (hold) Analyst: James O'Brien With news that Royal Bank of Scotland agreed to acquire Charter One Financial at a 24% premium, pending approvals, we think bank M&A trends show few signs of abating. While we find the premium high relative to similar recent Midwest deals, it solidifies our view that acquisitions will be part of bank growth strategies. Despite a perceived adverse interest-rate environment by investors, we think the potential for further M&A provides somewhat of a valuation floor for small-cap banks. Charter One trades at 13.7 times our 2005 estimate, a two-point premium to large-cap peers. Whole Foods Market (WFMI ): Maintains 3 STARS (hold) Analyst: Joseph Agnese April-quarter operating earnings per share of 54 cents, vs. 41 cents is 5 cents above our estimate. Net sales grew 24% on a 17.1% rise in comp-store sales, both better than we expected. Whole Foods believes sales benefited from the retention of 30% of the customers gained during the southern California supermarket strike, and from the earlier Easter holiday. Margins widened on sales leverage, despite higher labor costs. To reflect our view of an acceleration of new store openings and strong sales trends, we are raising our fiscal 2004 (Sep.) earnings per share estimate by 10 cents to $2.10 and our 12-month target price $6 to $86, based on a p-e-to-growth analysis.  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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