Markets & Finance

S&P Says Accumulate Coke


Hershey Foods (HSY): Maintains 3 STARS (hold)

Analyst: Richard Joy

Hershey's sees 2%-3% sales growth and a 9%-11% earnings per share gain for 2003, and announced a $500 million share buyback. S&P expects margins to improve on higher prices and a more profitable mix, despite higher cocoa costs. S&P is keeping the fourth quarter and 2002 earnings per share estimates at $1.01 and $3.15, but is raising 2003's by five cents to $3.50 in order to reflect a new buyback program. Hershey shares are worth holding at 19 times S&P's 2003 estimate, a premium to the price-earnings multiple for the S&P 500 Index and comparable peers, given the company's dominant market positions and improving cost structure.

Coca-Cola (KO): Maintains 4 STARS (accumulate)

Analyst: Richard Joy

Ahead of an analysts' meeting this afternoon, Coke maintained its outlook for 2002 and reaffirmed its long-term goal of 11%-12% growth in earnings per share and 5%-6% in volume. S&P views Coke's announcement that it will stop providing earnings per share guidance as a positive for focusing on the long-term success of its business. S&P is keeping the fourth quarter and 2002 earnings per share estimates at 39 cents and $1.76, respectively. Given the challenging environment, S&P is trimming the 2003 earnings per share estimate by a penny, to $1.94. Coke remains attractive on strong cash flow trends and long-term growth potential.

Adobe Systems (ADBE): Maintains 3 STARS (hold)

Analyst: Scott Kessler

Excluding a restructuring charge, goodwill amortization and investment loss, November quarter earnings per share were 25 cents vs. 21 cents, two cents above the Street's consensus and S&P's forecast. Sales rose 11%, aided by strength in Europe. S&P is increasing its fiscal 2003 (Nov.) earnings per share from $1.07 to $1.12, based largely on a lower projected tax rate. Adobe's fiscal 2003 price-earnings of 23 and price-earnings-to-growth ratio of 1.2 are in line with the S&P 500 Software Industry. At close to S&P's intrinsic value estimate using a discounted cash flow analysis, S&P says hold.

PepsiAmericas (PAS): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Richard Joy

PepsiAmericas reduced its fourth quarter earnings per share guidance to five cents to eight cents, compared with S&P's estimate of 19 cents. The shortfall reflects weak U.S. single-serve carbonated soft drink volumes and costs of revamping the European distribution system. European volume growth remains strong. S&P has cut its fourth quarter and 2002 earnings per share estimates by 13 cents each, to six cents and 88 cents, respectively. While reduced earnings per share visibility limits the upside, S&P believes shares are worth holding at 12 times S&P's 2003 earnings per share estimate of $1, a substantial discount to price-earnings multiples for the S&P 400 MidCap Index and comparable peers.

Brooks-PRI Automation (BRKS): Downgrades to 1 STAR (sell) from 2 STARS (avoid)

Analyst: Richard Tortoriello

The tool automation software company affirmed guidance of December quarter sales at $80 million to $85 million, down about 15%-20% from the September quarter. It sees a loss of 70 cents to 80 cents per share, with no tax benefit, in line with S&P's 52 cents estimate that assumes a benefit. Brooks plans to cut the quarterly breakeven sales level to $90 million to $95 million by June through a 25% headcount reduction and consolidation of 14 manufacturing sites into four. With no CFO named yet, S&P sees significant execution risk, and expects Brooks to fall to historical trough valuations of 0.8 times its sales, from the current level of 1.3.


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