Markets & Finance

S&P Says Buy Cephalon


Cephalon (CEPH): Maintains 5 STARS (buy)

Analyst: Frank DiLorenzo

Cephalon posted strong second quarter results, with product sales of $109 million -- $4.3 million above S&P's projection, and earnings per share of $0.25 -- $0.05 above S&P's estimate. EBITDA per share was $0.51. Provigil and Actiq sales were robust, up 58% and 192%, respectively, from a year ago. S&P is raising the projection of 2002 product sales to $439 million from $426 million, and is raising 2003's projections to $560 million from $539 million. S&P also is increasing the 2002 proforma earnings per share estimate by $0.04 to $1.12, as well as increasing 2003's estimate by $0.05 to $1.51. Based on a net present value analysis of the company's products and pipeline, discounted cash flows, and PE/growth ratio, S&P says Cephalon is very undervalued.

Level 3 Communications (LVLT): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Todd Rosenbluth

Though slightly lower Tuesday morning, Level 3 shares have more than doubled since a July cash infusion from three asset managers. While S&P still sees potential gains for this long-haul data transporter if demand picks up in 2003, the liquidity risks are mounting. With interest coverage below 0.8 times earnings for 2002, S&P Debt Ratings lowered Level 3's credit to "CCC". Customers are still tightening their purse strings, making cash flow generation a challenge. At an enterprise value of 15 times S&P's 2002 EBITDA expectations, Level 3 shares are risky.

Smucker Foods (SJM): Reiterates 5 STARS (buy)

Analyst: Mark Basham

Citing strength in fruit spreads and the smooth integration of Jif and Crisco businesses, Smucker says July quarter earnings per share is likely to exceed the Street's $0.40 consensus by 10%. The company also announced that, subject to actual cost reduction following a change in peanut price supports, it will reduce peanut butter prices by 6% -- effective January of 2003. S&P is raising the fiscal 2003 (April) earnings per share estimate to $1.98 from $1.93, and is upping fiscal 2004's earnings per share estimate to $2.22 from $2.19. The news bodes well for future growth, based on Smucker's expertise in building share for mature products.


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