Markets & Finance

S&P Says Accumulate Expedia


Expedia (EXPE): Maintains 4 STARS (accumulate)

Analyst: Scott Kessler

Expedia posted second-quarter earnings per share of 38 cents vs. 21 cents, before amortization of acquired intangibles and non-cash items, significantly above S&P and the Street's estimates. GAAP earnings per share was 30 cents vs. 15 cents. Expedia's net revenues rose 71% on strength in merchant hotels and packages. S&P expect the shares to continue to trade in step with those of majority stockholder InterActiveCorp (formerly USA Interactive), whose all-stock acquisition of Expedia is scheduled to be completed Friday, Aug. 8, pending Expedia shareholder approval. Each Expedia share would be swapped for 1.93875 InterActiveCorp share.

Waste Management (WMI): Reiterates 3 STARS (hold)

Analyst: Stewart Scharf

Waste Management posted second-quarter earnings per share of 32 cents before a 2-cent restructuring charge, vs. a year-ago's 35 cents -- 2 cents below S&P's estimate. Internal revenues rose 0.2% as slightly higher pricing offset soft volume. S&P sees 2003 free-cash flow of $950 million before a $220 million class-action payment, to fund Waste Management's new annual 75 cents dividend payout, up from 1 cent, plus share buybacks, acquisitions, and debt paydowns (recent debt-to-capital was 60%). At 19 times S&P's 2003 earnings per share estimate of $1.30, on par with the p-e that S&P sees for the S&P 500, and at a modest premium to its closest peers, S&P is setting a 12-month target price of $26.

Cephalon (CEPH): 4 STARS (accumulate)

Analyst: Frank DiLorenzo

Second-quarter Provigil sales of $69.5 million were $5 million above S&P's forecast, and Actiq sales of $52.7 million were $1 million above S&P's forecast. Proforma earnings per share of 31 cents was 8 cents below S&P's view, due to higher costs than expected. On Sept. 25, an FDA panel will review Provigil to treat excessive sleepiness from sleep and wakefulness disorders. S&P thinks FDA approval would provide a major sales boost. S&P sees 2003 earnings per share at $1.48, and 2004's at $2.04. Based on S&P's 2004 estimate, Cephalon's p-e-to-growth ratio of 0.9 is at a discount to its peers' average of 1.4. Assuming Cephalon's p-e moves to 1.2 on positive Provigil news, S&P's 12-month target price is $63.

Gillette (G): Maintains 4 STARS (accumulate)

Analyst: Howard Choe

Gillette posted second-quarter earnings per share of 33 cents vs. 26 cents -- 4 cents above S&P's estimate. New product sales and continued cost savings drove better sales and profit growth than expected. Touching on competitor Schick's new razors, Gillette reiterated the performance attributes and consumer loyalty for its own Mach3 and Venus brands. However, it forecasts a negative 2 cents to 4 cents earnings per share impact in 2003 and 5 cents to 7 cents impact in 2004 because of the new entrants. Gillette introduced three new razors in response today. S&P believes the company will remain a leader in personal care with leading margins and cash flow growth.

Oxford Health (OHP): Maintains 5 STARS (buy)

Analyst: Phillip Seligman

The second-quarter run-rate earnings per share of 86 cents vs. 68 cents is a penny above S&P's estimate. Commercial premium revenue rose 11.3% on 10.9% higher premium yield, and 0.9% fewer members. The commercial medical loss ratio fell, as did the selling, general, and administrative expenses ratio. Investment gain and less shares also aided earnings per share. Operating cash flow remains healthy, in S&P's view. Given S&P's belief that Oxford should continue to gain share in the highly competitive New York metro area, with added gains likely when the job market revives, S&P thinks it merits a p-e closer to peers' multiple of 14. Assuming a p-e of 11, S&P's 12-month target price is $52, based on S&P's 2004 estimate of $4.75.

Tommy Hilfiger (TOM): Maintains 3 STARS (hold)

Analyst: Jason Asaeda

Before special items, June-quarter earnings per share of 11 cents vs. 3 cents beat S&P's estimate by 8 cents and the Street's by 7 cents. Revenues were flat, as S&P expected amid tough retail conditions, but a reduction in Tommy Hilfiger's markdown dollars for retailers lifted pretax income by about $9 million. This benefit was cut in half by related spring order cancellations. S&P is adjusting the fiscal 2004 (Mar.) operating earnings per share estimate up 8 cents to $1.16. Tommy plans to launch a dressier label in fiscal 2005, but with limited catalysts seen to improve near-term results, S&P sees the stock as fairly valued at a p-e below peers.


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