Markets & Finance

Still Hold Qualcomm


Qualcomm (QCOM): Reiterates 3 STARS (hold)

Analyst: Kenneth Leon

Qualcomm shares are down 3% today. We believe the shares are weak due to competitive news that STMicroelectronics, Texas Instruments, and Nokia will work together to enter the cdma2000(R) chipset market that is dominated by Qualcomm. Also, the company did put out news releases on favorable subscriber milestones for 2 major customers in China and India. We believe there are concerns about lower subscriber additions in both markets. The company has an analyst meeting in New York City next Thursday. Given its unique market role, we would hold the shares despite selling at an above market p-e of 37 times our 2003 earnings per share estimate.

Northern Trust (NTRS): Downgraded to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Evan Momios, CFA

We expect lackluster equity market conditions and an unfavorable interest rate environment to continue to challenge revenue growth in 2003. We believe that efforts to reduce expenses and increase productivity will eventually result in a more efficient organization but we do not see significant short-term benefits to the bottom line. We are reducing our 2003 EPS estimate to $1.78 from $1.85. At 21 times our 2003 estimate, and with a still tough outlook, the shares appear richly valued relative to the company's peers and should be below-average performers in the next 6 to 12 months.

IBM Corp. (IBM): Reiterates 4 STARS (accumulate)

Analyst: Megan Graham-Hackett

IBM held an analyst meeting on May 14 and reiterated its view that the information technology industry should grow at multiple of GDP. IBM believes that no one product will spur this growth, but rather further investments to drive productivity. IBM continues to characterize business as "stabilized" and didn't change its guidance. While we aren't changing our estimates on Big Blue, we came away from meeting more convinced of IBM's competitive strengths, both in breadth and depth. With IBM trading below its intrinsic value, based on our discounted cash flow analysis, the shares are attractive.

Analog Devices (ADI): Reiterates 5 STARS (strong buy)

Analyst: Thomas Smith, CFA

The company reported second-quarter fiscal 2003 (ending October) earnings per share of 19 cents, versus 4 cents one year earlier, which was a penny above consensus. Revenues grew 21% year-over-year and 7% quarter-over-quarter, above the guided range. Margins widened. With orders and backlog rising, and $101 million cash generated, we view ADI's second quarter as successful. We have more confidence in our above-consensus EPS estimates of 82 cents for fiscal 2003 and $1.30 for fiscal 2004. At 25 times our $1.38 calendar 2004 estimate, the shares are above market but in line with DSP/analog rival Texas Instruments and below pure-play high-end analog peers. We project that the chip industry will rebound with the economy through 2005.

Computer Associates (CA): Reiterates 3 STARS (hold)

Analyst: Jonathan Rudy, CFA

CA posted March quarter pro forma earnings per share of 8 cents vs. breakeven results one year earlier, 2 cents above Street estimates. Revenue growth of 4% was slightly weaker than our estimate. Cash from operations of $577 million was solid, in our opinion, and the company repaid $476 million in debt in April. We are raising our fiscal 2004 (ending March) operating EPS estimate to 42 cents, from 26 cents. Despite our view of CA's solid execution in a challenging economic environment and an improving balance sheet, a lingering SEC investigation and premium p-e multiple to its industry peers at 48 times our fiscal 2004 EPS estimate would keep us from adding to positions.


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