Markets & Finance

S&P Cuts Andrx to Hold


Carnival Corp. (CCL): Maintains 3 STARS (hold)

Analyst: Thomas Graves

The company reported May quarter earnings per share of $0.33 vs. $0.32, which is above estimates. S&P is raising the fiscal 2002 (Nov.) EPS estimate to $1.66, from $1.60, and is upping the fiscal 2003 estimate to $2.05, from $2.00. S&P is encouraged by the recent recovery in cruise pricing. Also, with or without the acquisition of the Princess cruise business, S&P expects Carnival stock to get support from the prospect of cruise demand benefiting from aging baby boomers. However, S&P sees the the stock adequately priced at 18 times fiscal 2002 EPS estimate, which is a moderate discount to the estimated price-earnings multiple for the S&P 500.

Andrx Group (ADRX): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Herman Saftlas

An FDA panel is expected Friday to consider a Procter & Gamble request to market an over-the-counter version of Prilosec, an indigestion drug. If approved, P&G would sell the product under a license from AstraZeneca. Approval of an over-the-counter Prilosec is likely to significantly diminish the market for prescription Prilosec. This clouds Andrx's potential for its generic Prilosec (Andrx is battling AstraZeneca for the rights to market that product). Andrx still has an impressive pipeline of sustained release generics. But S&P sees shares highly volatile in the near term.

ImClone (IMCL): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Frank DiLorenzo

The stock is down Thursday on possible SEC charges regarding the lack of disclosure about ImClone's cancer drug, Erbitux. The potential approval of the drug is now questionable, and new studies are necessary. With several other anti-cancer drugs in development, Erbitux prospects are dim. Unfortunately, confidence in the company and the data has been eroded. S&P sees losses per share of $1.62 in 2002 and $1.52 in 2003. With all the problems for ImClone and the sector in general, S&P views the company's shares as unnattractive.

Felcor Lodging (FCH) and Host Marriott (HMT) to avoid from hold

Analyst: Raymond Mathis

These upscale, full-service hotel properties continue to suffer from slow business travel. Felcor lowered its guidance Thursday, to EBITDA of $92-$96 million, roughly what S&P expected but sizably below the Street's expectations. And Host Marriot is buying growth, acquiring a property this week for $214 million, which is full price in a down market. S&P is beginning to worry about reinstatement of dividends in 2002, and also that with the recovery in stock prices, the acquisitions will be a prelude to the dilutive issuance of equity.

Schering-Plough (SGP): Maintains 1 STAR (sell)

Analyst: Herman Saftlas

A previously disclosed criminal investigation of Schering-Plough products made in Puerto Rico has been transferred from the FDA branch in Puerto Rico to a U.S. attorney's office in New Jersey. This may indicate greater seriousness of the issue. S&P expects major margin contraction next year from a planned shift of Claritin from prescription to over-the-counter status, as well as the cost of correcting manufacturing problems, and the conversion of Rebetron to a PEG version, which involves more royalty payments. S&P now sees 2003 earnings per share at $1.25. Schering-Plough still is valued at a premium to intrinsic worth based on S&P's discounted cash flow model.

Research In Motion (RIMM): Downgrades to 1 STAR (sell) from 3 STARS (hold)

Analyst: Megan Graham Hackett

Rising evidence of further slowdown in European carrier spending from companies like Riverstone Networks could lead to further delays in general packet radio services (GPRS) rollouts in Europe. As a result, S&P is conservatively cutting the quarterly revenues estimates for Research In Motion in fiscal 2003 (Feb.) and now forecast $301 million for the year, down from $361 million, and is widening the estimate of a loss per share to $0.68 from $0.41. Research In Motion shares therefore appear rich at 3.3 times S&P's calendar 2002 revenue estimate, a premium to peers and the broader market.


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