Markets & Finance

S&P Upgrades Family Dollar to Accumulate


Family Dollar (FDO): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Karen Sack

The discount retailer's February quarter earnings per share were better than expected, rising 6% to $0.37. Same-store sales rose 8%, and sales of high-margin apparel improved. S&P is raising its fiscal 2002 (Aug.) EPS estimate by $0.03, to $1.25. Family Dollar is on track to open 525 new stores annually over the next few years with more high-traffic urban locations. New systems and better inventory management should boost EPS by 18% in fiscal 2003. S&P sees 20% annual EPS gains in years ahead, with no long-term debt and ample cash flow to fund its $200 million capital expenditures program.

Gemstar-TV Guide (GMST): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Howard Choe

The company's outlook for the first quarter is weak, and the president and co-COO Boylan resigned. Gemstar's fourth-quarter results were modestly better than expected, with sales down 4% and EBITDA up 18%. However, the company is not providing 2002 guidance and the first quarter outlook for its technology and interactive segments are weaker than previously expected. Growth of these segments is the key to the company's future growth. S&P views the departure of Boylan as a major blow, since he was the key negotiator for program deals. Still, positive news for Gemstar may emerge on Thursday, as the results of the International Trade Commission patent trial are due. Since acquiring TV Guide in 2000, Gemstar has been working to patent its interactive program guide and other products.

New York Community Bancorp (NYCB): Adding to coverage with 4 STARS (accumulate)

Analyst: Ephraim Eisenstein

This New York area thrift has proven itself an adept acquirer, maintaining high efficiency though major transactions in recent years. This is an important attribute in the local retail banking market that is ripe for consolidation. New York Community Bancorp also enjoys bank-like lending margins, with its emphasis on multi-family lending.. The company's credit quality is excellent, without a net chargeoff in more than seven years -- a remarkable record. Shares are attractive, trading at 14 times S&P's 2002 EPS estimate of $2.04.

Fortune Brands (FO): Reiterates 5 STARS (buy)

Analyst: Howard Choe

The diversified company stated at an investor conference Tuesday that it expects to exceed the higher end of first-quarter EPS guidance range ($0.50 to $0.53) versus S&P's $0.51 estimate. Higher than expected sales are due to an especially strong demand in home and hardware, and spirits and wine businesses. S&P is raising the 2002 estimate to $3.02 from $2.97. Fortune is is well positioned for an economic recovery with home and golf businesses. Coupled with a strong balance sheet and free cash flow growth, Fortune is a rock-solid investment opportunity. The stock is still very appealing, with shares trading at 16 times S&P's 2002 EPS estimate.

Brooks Automation (BRKS): Upgrades to 5 STARS (buy) from 3 STARS (hold)

Analyst: Robert Tortoriello

The semiconductor factory automation hardware and software maker stands to benefit from an upcoming move to next-generation 300mm (12-inch) wafer fabs. With the acquisition of PRI Automation, which is expected to close this month, Brooks will provide end-to-end automation solutions. S&P expects that 300mm wafer fabs will be fully automated, as larger wafers are heavier and more expensive and the yield is more critical. At 3.1 times sales and 2.3 times the book value, Brooks is attractive relative to historical valuations and the rest of the group.

Charles Schwab (SCH): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Robert McMillan

Shares are trading at about 32 times S&P's 2002 $0.45 per share earnings estimate, significantly higher than the multiples accorded to larger rivals with more diverse businesses. Although S&P expects that the company's trading and mutual fund business will eventually benefit as the markets rebound, S&P thinks the shares are likely to underperform the market given their high valuation and concerns about the sustainability of any increase in trading activity.


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