Markets & Finance

S&P Says Accumulate Goldman Sachs


Goldman Sachs (GS): Maintains 4 STARS (accumulate)

Analyst: Robert McMillan

May-quarter earnings per share of $1.36, vs. $1.06 is well above expectations. Strength in the fixed income, currency, and commodities businesses, and lower interest expense, helped revenues. S&P looks for the asset management and investment banking businesses to improve if recent strength in the stock market and improving investor sentiment can be sustained. S&P is reviewing its estimates. Although shares at 18 times S&P's current fiscal 2003 (Nov.) earnings per share estimate of $4.69 are trading at a slight premium to the S&P 500, S&P expects shares to outperform on improving business momentum.

Palm (PALM): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

Palm posted a May-quarter pro forma loss of 30 cents, which is narrower than S&P's 85 cents estimate, mostly on operating expense controls. Revenues of $225.8 million, down 3.2% year-over-year, beat S&P's $185 million estimate and the upper end of Palm's guidance. Palm saw strong acceptance of new products as Palm handhelds grew 5%, marking the first year-to-year rise in six quarters. Inventories also were in good shape. Palm sees May-quarter revenues down about 20% quarter-over-quarter, to $175 million to $185 million, in line with S&P's model. S&P now sees a fiscal 2004 (May) loss of $1.30. With cash and short-term equivalents of more than $8 per share, and with execution improving, S&P views Palm as worth holding.

Paychex (PAYX): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Paychex posted May-quarter earnings per share of 19 cents vs. 18 cents -- a penny below S&P's estimate. Revenues rose 19%, with 20% growth in payroll service revenue and 18% growth in the broader Human Resources segment. Results benefited from the recent acquisitions of Advantage Payroll Services and Interpay. Paychex was hurt by lower interest rates, with 4% lower interest on funds held for clients. Operating margin remained strong at 33%, excluding acquisitions. Despite solid results in a challenging environment, S&P would not add to positions, with shares trading in the middle of S&P's fair value range of $28-$32.


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