Markets & Finance

S&P Says Hold Gap


Gap (GPS): Maintains 3 STARS (hold)

Analyst: Yogeesh Wagle

The retailer posted April-quarter earnings per share of 22 vs. 4 cents, a penny above the Street's mean. Same-store sales grew 12%, vs. a decline of 17% for the prior year period, led by increases of 16% at Old Navy and 12% at Gap U.S. However, the Banana Republic division posted a 1% gain, less than expected. Despite a planned 2% reduction in square footage, S&P expects earnings per share of 90 cents in fiscal 2004 (Jan.) on mid-to high single digit sales growth and modest margin expansion. S&P believes Gap has made strong headway in its turnaround, but given its relatively high p-e vs. the S&P 500 and peers, S&P keeps its hold recommendation.

Autodesk (ADSK): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Autodesk posted April-quarter earnings per share of 7 cents, vs. 15 cents -- 2 cents above the Street's mean. Revenues declined 8%, slightly better than S&P projected. The company experienced notable strength in the Asia/Pacific region, and the discrete division performed better than S&P expected. S&P sees a mid-single-digit revenue increase in fiscal 2004. S&P is raising its fiscal 2004 (Jan.) earnings per share estimate to 53 cents, from 52 cents. Shares are trading at a premium to the S&P 500 at 28 times S&P's fiscal 2004 estimate. But with a product upgrade cycle arriving, and with over $3.50 per share in cash and marketable securities, and no debt, S&P says hold Autodesk.

Novell (NOVL): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Novell posted an April-quarter operating loss of 2 cents, vs. 3 cents, excluding one-time charges, a penny better than the Street's estimates. Revenues increased 1%, slightly better than S&P's estimate. Novell experienced some strength in the European region. Deferred revenue increased 26% year over year. S&P anticipates a fractional revenue increase in fiscal 2003 (Oct.). S&P sees a fiscal 2003 loss of 4 cents. Despite near-term operating losses, with shares trading at a notable discount to peers at 0.9 times revenue, and with cash and short-term investments of about $1.85 per share, and no debt, S&P believes Novell is worth holding.

Prudential Financial (PRU): Maintains 3 STARS (hold)

Analyst: Catherine Seifert

Prudential agreed to sell its national property-casualty insurance unit to Liberty Mutual for $413 million, resulting in a net loss on the transaction of $149 million (27 cents a share). Prudential is also selling its New Jersey auto business for $260 million, for a net loss of $113 million (21 cents a share). S&P is encouraged that Prudential is able to complete this facet of its strategy of shedding non-core lines. But S&P views the near-term prospects for Prudential's core life and financial services units as mixed, and believes there still remains a high degree of execution risk here. S&P is putting its $2.25 2003 estimate under review.


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