Markets & Finance

S&P Keeps Buy on Harrah's Entertainment


Harrah's Entertainment (HET): Maintains 5 STARS (buy)

Analyst: Thomas Graves

Although S&P is disappointed by the extent of casino tax hikes approved in Illinois, Harrah's geographic diversity should limit the impact. S&P is lowering the 2003 earnings per share estimate to $2.94, from $3.10, and is cutting the 2004 estimate to $3.05, from $3.35. Based on 2003 earnings per share projections, the stock is at p-e discount to the S&P 500 and peers. S&P looks for shares to benefit from the anticipation of improved consumer confidence, a stronger U.S. economy, and the ability to generate free cash flow. But, S&P is reducing the 6-month to 12-month target price to $48, from $50.

Viacom (VIA.B): Reiterates 5 STARS (buy); News Corp. (NWS) and Univision (UVN): Reiterates 4 STARS (accumulate); and Clear Channel (CCU): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi

In a 3-2 partisan-line, majority decision, the FCC approved landmark revisions to broadcast rules. Highlights include a 45% national cap (up from 35%), substantially eased TV duopoly restrictions and cross-media ownership limits (based on a new "diversity index"), as well as Arbitron-based radio market re-measurements (replacing a contour overlap). As S&P expected, the new rules bodes for more broadcast deregulation, albeit with a tightened radio regime.

IMC Global : (IGL): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Richard O'Reilly

IMC Global now sees a breakeven second quarter before currency losses, largely due to disappointing domestic spring demand for fertilizer, vs. the prior 10 cents to 15 cents earnings per share guidance. This includes a 6-cent gain from an asset sale, plus costs for an April mine shutdown, idling all Louisiana capacity beginning in June. Currency losses would be about 5 cents at current rates. High nitrogen fertilizer prices appear to have reduced demand for phosphate and potash. S&P is reducing its 2003 estimate to breakeven before currency losses. While S&P thinks low crop supplies enhances IMC's long-term fundamentals, S&P says hold the shares.

J.D. Edwards : (JDEC): Downgrades to 2 STARS (avoid) from 3 STARS (hold) and PeopleSoft (PSFT): Reiterates 2 STARS (avoid)

Analyst: Jonathan Rudy

PeopleSoft announced it will acquire J.D. Edwards in a stock deal valued at about $1.7 billion. The transaction is expected to close in late third-quarter or early fourth-quarter. PeopleSoft expects the proposed deal to be accretive in 2004 excluding amortization and other purchase accounting adjustments. J.D. Edwards brings a mid-market customer list and manufacturing expertise to PeopleSoft. However, S&P has reservations over the technology integration road map and long-term benefits of the combination. With integration risk associated in the deal, and S&P's prior concerns over PeopleSoft's struggles with declining license revenue, S&P would avoid both PeopleSoft and J.D. Edwards.

Genentech (DNA): Maintains 3 STARS (hold)

Analyst: Frank DiLorenzo

Genentech released data for Avastin in treating colorectal cancer that showed Avastin, plus chemotherapy, improved the median survival to 20.3 months, compared to 15.6 months for chemotherapy alone. S&P believes Avastin could be approved in 2004, but says the recent run-up in the stock factors in the approval and very significant sales. S&P's net present value model includes $1.5 billion in Avastin sales, $2.5 billion in Rituxan sales, and $500 million in Xolair sales. On valuation models and a p-e-to-growth ratio of 2.7 times S&P's 2003 estimate of $1.18 earnings per share (S&P's earnings per share growth rate is 22.3%), S&P thinks the shares are fully valued.

ImClone Systems (IMCLE): Maintains 3 STARS (hold)

Analyst: Frank DiLorenzo

Shares are up strongly on positive news for Erbitux in treating refractory colorectal cancer patients. About 23% of patients in a trial conducted by Merck KgaA showed a response rate of at least a 50% reduction in tumor size; this response is similar to response data of 22.5%, which was released by ImClone in 2001. S&P believes approval is possible by the second half of 2004 if the FDA accepts the Merck data and data from a monotherapy trial. Still, S&P estimates that peak sales of $600 million is already built into ImClone's share price, based on margins to ImClone. On a fundamental valuation, S&P thinks the shares are fully priced.


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