Markets & Finance

S&P Raises Boeing to Buy


Boeing (BA): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Robert Friedman

Boeing's demand drivers and economics are mediocre at best. However, S&P thinks the market has dramatically mispriced the stock. Using a trough free-cash flow of $2.5 billion, growing at a projected 10-year rate of 4%-6% with a 3% terminal rate, S&P's free-cash models value Boeing shares at $41 to $47 a share, suggesting that Boeing is severely undervalued, at almost a 40% discount to the low end of S&P's fair value range. S&P expects Boeing's airline end-markets to continue experiencing very severe turbulence, but thinks sufficient margin of safety now exists in the stock price.

Symantec (SYMC): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Jonathan Rudy

S&P sees a further near-term enterprise IT spending slowdown, and thinks a more cautious view on Symantec is warranted. Also, Symantec is heading into the seasonally weak period for its consumer anti-virus software, which has been strong recently. Despite acquisitions in the enterprise space, S&P is not convinced Symantec can sustain its forecast of 30%-plus growth in its that business. However, at 21 times S&P's fiscal 2004 earnings per share estimate of $1.89, with its industry-leading consumer anti-virus brand, S&P thinks Symantec will outperform the broader market over the next 6-12 months.

P.F. Chang's (PFCB): Maintains 5 STARS (buy)

Analyst: Markos Kaminis

Revenues rose 35%, beating P.F. Chang's forecast of 30% growth. Same-store sales in the bistro segment rose 6.4%, mostly on increased traffic, with 0.5% revenue stemming from an increase in menu prices. P.F. Chang's now expects its first quarter earnings per share to exceed its prior guidance of 24 cents; S&P is keeping its high-end estimate of 26 cents. At 38 times S&P's $1.05 earnings per share estimate for full-year 2003, S&P thinks P.F. Chang's is modestly valued, vs. S&P's forecast for 30% earnings per share growth in 2003. Based on S&P's cash flow valuation model and P.F. Chang's execution track record, S&P would buy this growth story.

Biogen (BGEN): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Frank DiLorenzo

Biogen raised its guidance for the first quarter and full-year 2003, and says the launch of psoriasis treatment Amevive is proceeding well. S&P also thinks Avonex, a Multiple Sclerosis treatment, is holding up better than expected in the face of competition. Biogen sees first quarter proforma earnings per share of 47 cents to 51 cents, above S&P's estimate of 36 cents. While Amevive is approved in U.S., the company will need to conduct new trials for European approval. S&P is raising its 2003 Amevive sales forecast to $87 million, from $79 million; and still sees Avonex sales around $1.04 billion. S&P also raised the 2003 earnings per share estimate to $1.79 from $1.71, and upped the 2004 estimate to $1.94 from $1.91. On higher estimates and slightly better growth, Biogen is reasonably priced.

Clayton Homes (CMH): Downgrades to 3 STARS (hold) from 5 STARS (buy)

Analyst: Michael Jaffe

Clayton agreed to be bought by Berkshire Hathaway for $12.50 per share in cash, or $1.7 billion. As S&P has long said about Clayton Homes, its strong management team, conservative operating strategy, and strong financial services business clearly puts it at the top of the manufactured home industry. Synergies from a combination with Berkshire should widen the gap. Yet, with excessive industry retail sites and a big supply of repossessed homes depressing the sector in recent years, S&P doesn't expect a competitive bid, and would not add to positions.

WebEx Communications (WEBX): Maintains 5 STARS (buy)

Analyst: Mark Basham

WebEx says it's likely met the Street's first quarter consensus earnings per share estimate of 11 cents, despite revenues 4% lower than expected, by tightening up on costs. S&P thinks a modest revenue miss of 4% is explainable by delays in corporate spending amid war uncertainties, and is not indicative of a change in the the company's competitive position. WebEx lowered its prior 2003 revenue guidance of $200 million by 5% to 10%. It also is cutting its earnings per share outlook by a range of 0 cents to 10 cents. S&P cut its revenue projection by 6.5% to $187 million, and trimmed the earnings per share estimate to 49 cents from 53 cents. S&P's revised discounted cash flow-based target is $21, vs. the prior $26.


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