http://www.businessweek.com/stories/2005-07-26/s-and-p-keeps-hold-on-boeing

Markets & Finance

S&P Keeps Hold on Boeing


Boeing (BA): Reiterates 3 STARS (hold)

Analyst: Robert Friedman, CPA

The $55-billion in revenue aerospace giant posts a 37% rise in second-quarter S&P Core Earnings to 56 cents per share, from 41 cents, we calculate, and compared with our 43 cents estimate, primarily driven by a 20% rebound in jetliner sales. Looking at Boeing's sustainable earnings growth and profitability prospects, we believe new CEO Jim McNerney will be able to transform Boeing's mature jetliner and military hardware products into platforms that can post higher-margin recurring earnings streams from services and consumables. As a result, we project 10-year free cash flow growth rates of 7.5%-8.5% and 15%-17% average return on equity (ROE).

Amazon.com (AMZN): Upgrading to 3 STARS (hold) from 2 STARS (sell)

Analyst: Jason Asaeda

Second-quarter operating earnings per share of 12 cents, vs. 18 cents, misses our estimate by 3 cents, on taxes related to the first-quarter transfer of assets out of the U.S., partly offset by a forex gain on remeasurement of euro notes. Gross margin widened 110 basis points on increased third-party sales. Expenses were also leveraged on a 26% sales rise. We see growth initiatives driving further margin improvement and stronger free cash flow. We are increasing our 2005 operating EPS estimate by 2 cents, to 80 cents, and see 2006's at $1.02. We are raising our discounted cash flow-based 12-month target price by $9 to $42.

Tupperware (TUP): Downgrading to 3 STARS (hold) from 4 STARS (buy)

Analyst: Howard Choe

Our downgrade is based on a lower earnings outlook. Before unusual items, Tupperware posts second-quarter earnings per share of 45 cents, vs. 40 cents. It cuts its 2005 earnings guidance to reflect a weakening euro and higher planned investment to stimulate sales-rep growth. While we view this as positive for the long term, we think a turnaround in stagnant markets such as Germany and Japan will take time. We are lowering our 2005 EPS estimate to $1.50 from $1.63, and 2006's to $1.63 from $1.80. We are lowering our target price to $22 from $26. We view Tupperware, trading in line with peers, as fairly valued for its earnings outlook.

Bausch & Lomb (BOL): Downgrading to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Robert Gold

Following the second-quarter conference call, we are reducing our opinion to reflect our view that results in the second half will see modestly lower pharmaceutical sales than we had projected, adverse currency moves, and weak European refractory surgery market. We also think margin expansion will moderate due to rising research and development and selling, general and administrative costs, and higher net financing expenses. We are lowering our 2005 EPS estimate by 5 cents, to $3.45, and our sales estimate falls to $2.37 billion to $2.39 billion from $2.4 billion. We still see $4.05 in 2006. Our target price falls by $16 to $93, 23 times our 2006 estimate, in line with our device coverage universe.

P.F. Chang's China Bistro (PFCB): Reiterates 3 STARS (hold)

Analyst: Dennis Milton

P.F. Chang's China Bistro posts June-quarter earnings per share of 34 cents, vs. 32 cents, in line with our estimate. However, the shares are down more than 13% today, after the company announced that same-store sales had turned negative in July, and that it was experiencing delays in new store openings. We are reducing our 2005 EPS estimate by 8 cents to $1.45, and our 2006 estimate by 10 cents to $1.73. We are lowering our 12-month target price by $4 to $57. At 37.5 times our 2005 EPS estimate, the shares trade at a significant premium to peers. We believe this premium is appropriate, given our view of P.F. Chang's China Bistro's strong expansion prospects.

Colgate-Palmolive (CL): Reiterates 5 STARS (strong buy)

Analyst: Howard Choe

Colgate-Palmolive reports second-quarter earnings per share of 67 cents, vs. 66 cents, 1 cent below our estimate. Sales growth of 10.5% was impressive, in our view, and was driven by higher marketing spending over the past 9 months. We believe Colgate-Palmolive is extending its market share lead globally. We were also encouraged by the turn in pricing: flat year-over-year in the second quarter vs. negative in the past 6 quarters. With restructuring savings and a moderation of marketing spending likely in the second half, we believe Colgate-Palmolive will show higher profit growth. We view the shares as attractive at a modest discount to peers and below our $62 target price.

Biogen Idec (BIIB): Maintains 3 STARS (hold)

Analyst: Frank DiLorenzo, CFA

Second-quarter operating earnings per share of 43 cents, vs. 34 cents, is 8 cents above our estimate on lower-than-expected costs. Avonex sales of $382 million were in line with our view. U.S. Rituxan sales were $450 million. We look for the FDA filing for Rituxan as a second-line treatment in rheumatoid arthritis by the end of 2005, with approval by the fourth quarter of 2006; we think there could be some upside in this indication. We don't see Tysabri returning to the market. Our 2005 EPS estimate rises to $1.57 from $1.40; 2006's rises to $1.84 from $1.69. Assuming the shares trade to a p-e-to-growth of 1.6 times our 2006 estimate, our target price rises to $42 from $39.


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