http://www.businessweek.com/stories/2002-07-31/s-and-p-ups-applebees

Markets & Finance

S&P Ups Applebee's


Applebee's (APPB): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Dennis Milton

The company reported second quarter earnings per share up 19% to $0.37, in line with S&P's estimate. Results benefited from expansion, a same-store sales rise of 3.2%, supply chain improvements, low food and utility costs, and the elimination of goodwill amortization. S&P is raising the EPS estimates for 2002 and 2003 by $0.02, to $1.45 and $1.63, respectively, to reflect lowered concerns about food and labor costs. With a P/E ratio of 13 times the 2003 estimate, S&P says shares are attractive at a discount to peers, despite superior long-term return-on-equity performance and excellent growth prospects.

Gilead Sciences (GILD): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Frank DiLorenzo

July was a strong biotech rally, but Gilead did not participate. However, S&P says Gilead has better fundamental momentum than most biotechs. Very strong growth of Viread sales and good AmBisome results should continue in 2002 and 2003. Potential approval of adevovir for hepatitis B could continue momentum beyond 2003. S&P sees 2002 earnings per share at $0.24, and sees 2003 EPS at $0.59 as well asa 2004 EPS at $0.82. S&P's discounted cash flow model calculates a $38 share value. On strong sales and EPS growth, and the potential adefovir approval, S&P feel shares will strongly outperform in the second half.

Ford (F): Maintains 3 STARS (hold)

Analyst: Efraim Levy

The year-to-year increase was Ford's first in 2002, as higher retail sales outweighed lower fleet sales volume. Both cars and trucks were higher, at 0.2% and 2.3%, respectively. Ford brand sales edged up, while Land Rover and Jaguar continued to have the strongest comparisons. Explorer sales were higher, but competition is hurting market share of F-Series trucks. Despite the improvement, Ford likely lost market share again in the month. General Motors saw sales surge 2% in July, although Chrysler volume fell 4%.

Oxford Health (OHP): Reiterates 5 STARS (buy)

Analyst: Phillip Seligman

Oxford posted second quarter earnings per share of $0.75 vs. $0.73, before one-time items -- $0.03 above S&P's estimate. Premium revenue rose 11.6% vs. 8.4% in the first quarter on 7.2% more commercial members, and 19% (16,300) fewer Medicare members. The medical loss ratio was 81.2% vs. 81.7%, but beat the first quarter's 79.9%. Selling, general and administrative (SG&A) expenses were 11.3% vs. 10.8%. S&P believes Oxford will still meet the 2002 guidance of a medical loss ratio of 79%-79.5%, and SG&A of 11%-11.5%. Operating cash flow is strong, and S&P thinks more aggressive share buybacks are likely. Oxford should outperform at 12 times S&P's 2002 estimate of $3.60 vs. 15%-plus long-term growth.

Waste Management (WMI): Maintains 3 STARS (hold)

Analyst: Stewart Scharf

Waste Management posted second quarter earnings per share of $0.35 vs. $0.30, in line with projections. Internal revenues fell 1.5% mainly on weak volume. The company expects 2002 revenue growth to fall short of its earlier 1.5% guidance. S&P still projects $85 million in annualized savings from reorganization efforts. Free cash flow should exceed $1 billion, and S&P expects further shares buybacks (18 million shares in the first half). At 17 times S&P's $1.40 earnings per share estimate -- modestly below the P/E for the S&P 500 -- S&P views the company as fairly valued. Also. operating earnings per share of $1.19 in 2001 was before a $0.13 stock option expense.

Newell Rubbermaid (NWL): Maintains 5 STARS (buy)

Analyst: Howard Choe

Before charges, Newell posted second-quarter earnings per share of $0.39 vs. $0.29 -- $0.03 above S&P's estimate and $0.02 above the Street's consensus. Sales growth of 10% (5% internal) was better than expected, as all divisions improved. S&P credits new product development and effective marketing efforts for the improvement. Operating margin expansion continued for the second consecutive quarter, up 70 basis points. S&P is raising the 2002 earnings per share estimate to $1.57 from $1.52. With improving trends, Newell shares are attractive at a 1.1 price-to-sales multiple, a large discount to peers and intrinsic value.


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