Markets & Finance

S&P Says Hold Disney


Walt Disney (DIS): Maintains 3 STARS (hold)

Analyst: Tuna Amobi

Disney posted 11 cents vs. 13 cents second-quarter earnings per share, in line with expectations. Advertising revenue growth at its ABC network, and strong home video trends, should drive a modest fiscal 2003 (Sep.) revenue increase. Amid geopolitical uncertainties, theme parks continued to be hurt by a slowdown in visitors. But rising consumer confidence and new attractions could spark a second-half pick-up. S&P is concerned by high sports programming costs at ESPN, although Disney maintains a rates push with distributors. With an enterprise value at 13 times the estimated fiscal 2004 EBITDA, and a p-e at 1.6 times the growth rate, S&P views Disney as amply valued.

Priceline.com (PCLN): Maintains 3 STARS (hold)

Analyst: Scott Kessler

The online travel agency posted first quarter earnings per share of less than a penny, vs. a per-share loss of less than a penny, before warrant costs and preferred stock dividend, in line with S&P's forecast. The first-quarter GAAP per-share loss was four cents, vs. earnings per share of two cents. Revenues fell 23%, reflecting weak demand for air travel offset by strength in hotels and packages offerings. Operating margin improved on a more favorable revenue mix and expense management. Priceline also indicated it is proposing a reverse stock split. Despite p-e and p-e-growth ratios below those of peers, revenue growth and margins lag competitors.

Walgreen (WAG): Maintains 4 STARS (accumulate)

Analyst: Joseph Agnese

Discount retail giant Walgreen reported an April sales increase of 15.2%, on a 10.8% rise at comparable stores. Pharmacy comp-store sales grew 11.1%, as prescription volume rose 6.1%. Non-prescription comp-store sales increased 10.3%, aided by the shift of Easter into April. March/April period sales rose 12.6% and same-store sales increased 8.1%, as S&P expected. Non-prescription comp-store sales rose 2.6% in the combined period, more than S&P expected. Though shares are trading at 26 times S&P's calendar 2003 earnings per share estimate of $1.20 -- above peers -- S&P sees this clear industry leader benefitting from favorable industry trends.

Cigna (CI): Maintains 3 STARS (hold)

Analyst: Phillip Seligman

The health insurer posted operating earnings per share of $1.46, vs. $1.92, which is 3 cents above S&P's estimate. Cigna still sees 2003 earnings per share at $6.25-$6.50. S&P is encouraged by Cigna's initiatives but wary of operating growth assumptions. Cigna's medical cost trend is above peers and its medical management program is too new to judge its success. Medical membership fell more than S&P expected, and despite service gains, intensifying competition suggests that more attrition is likely. At 8.3 times S&P's 2003 estimate of $6, Cigna trades below peers, but S&P would not add to positions until a sustainable turnaround progress appears.

Cypress Semiconductor (CY): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Thomas Smith

Cypress projected June quarter revenue to run near $200 million, above the Street's $193 million. Cypress also sees pro forma earnings per share of three cents, vs. the consenus of one cent. Cypress cited strength in its wireless business. S&P thinks that a revenue spurt, combined with recent cost cuts, should permit a decisive return to pro forma profitability. S&P is raising the 2003 pro forma earnings per share estimate to 10 cents, from 5 cents, and is upping the 2004 pro forma estimate to 47 cents, from 45 cents. The shares trade at 20 times S&P's 2004 estimate, which is modest among its cyclical-growth peers. Accounting for stock options expenses, S&P sees negative earnings per share estimates through 2004, on a S&P Core Earnings basis.


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