Markets & Finance

S&P Keeps Hold on Adobe Systems


Adobe Systems (ADBE): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Adobe posted August-quarter earnings per share of 28 cents, vs. 22 cents, before investment losses from a venture program and the partial reversal of a restructure charge -- 3 cents above S&P's and the Street's forecasts. GAAP earnings per share was 27 cents, vs. 20 cents. Adobe's revenues rose 12% on 62% growth in the ePaper segment (40% of the August-quarter total). Operating margin of 28.9% was 200 basis points above S&P's forecast, boosted by cost controls. S&P is raising the earnings per share estimates for fiscal 2003 (Nov.) by 4 cents, to $1.09 and for fiscal 2004 by 11 cents, to $1.31. Despite S&P's view of product momentum, the 12-month target price, derived using a discounted cash flow analysis, is $41.

Campbell Soup (CPB): Maintains 3 STARS (hold)

Analyst: Richard Joy

Campbell reported July-quarter earnings per share of 18 cents, vs. 17 cents, a penny above S&P's estimate. Full fiscal 2003 (July) earnings per share were $1.52 vs. $1.41. The company's fourth-quarter sales rose 19%, with volume/mix up 6%, prices up 2%, promotions down 3%, currency up 5%, and acquisitions adding 3%. Results include the benefit of one extra week than in the prior fiscal year, adding 7% to 8% to sales growth. S&P is reiterating the fiscal 2004 earnings per share estimate of $1.60. S&P thinks improving product momentum makes Campbell Soup worth holding. S&P's 12-month target price of $27 assumes shares will trade in line with p-e multiples for industry peers and the S&P 500 Index.

Providian Financial (PVN): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Robert McMillan

Several consumer finance companies have recently reported improving credit-quality trends. This leads S&P to believe that Providian may also be experiencing a similar trend, especially as it continues to work on finding a good mix of medium/high-risk customers. S&P is maintaining the earnings per share estimates of 61 cents and 96 cents, respectively, for 2003 and 2004. Based on S&P's view that Providian will demonstrate that it can grow earnings and improve credit quality, S&P expects its valuation multiples to expand. S&P's 12-month target price is $13.50.

TriQuint Semiconductor (TQNT): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Richard Tortoriello

TriQuint raised its forecasts of third-quarter sales to $75 million to $77 million, from the previous guidance of $70 million to $74 million, and raised the gross margin to 25% to 28%, from 24% to 27%. It says bookings and shipments remain strong, and it has seen resumed growth in the Indian handset market. Also, the completion of asset transfers from Infineon to TriQuint's Oregon fab appears to be aiding gross margins. S&P sees a loss per share of 37 cents in 2003, and 3 cents earnings per share in 2004, and 29 cents earnings per share in 2005. Based on what S&P sees as a conservative valuation of 3.5 times sales, below the historical average of 4.5 times, S&P's 12-month target price is $7.50.

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

Analyst: Thomas Graves

S&P has a generally favorable view of news that Harrah's plans to acquire Horseshoe Gaming for about $1.45 billion. The planned transaction should boost Harrah's presence in some southern or Midwest gaming markets, create more opportunities for cross-marketing and strengthening of its customer loyalty program, and give Harrah's another brand to work with. S&P reiterates the 2003 earnings per share estimate of $2.82, and is adjusting 2004's to $2.97, from $2.90, reflecting expected accretion from the deal. Based on a blend of discounted cash flow and p-e analysis, S&P is keeping the 12-month target price at $50.

Johnson & Johnson (JNJ): Maintains 4 STARS (accumulate)

Analyst: Robert Gold

The pharmaceutical company's Corbis unit released nine-month follow-up data on its Cypher drug-coated stent trials in Canada and Europe, which demonstrated 5.1% restenosis rates, vs. 8.9% in a U.S. trial. Results are meaningful in that the population included some higher-risk patients, but S&P believes the improved results may partially reflect more refined stent placement techniques among physicians. J&J will present the results at next week's TCT conference in Washington. S&P expects the news will serve to "raise the bar" for Boston Scientific, which will also present stent trials results at TCT.

Quiksilver (ZQK): Maintains 5 STARS (buy)

Analyst: Michael Driscoll

The specialty retailer beat S&P's third-quarter earnings per share estimate by a penny, reporting 21 cents vs. 18 cents. Net income rose 35% on a 45% sales gain. Quiksilver is penetrating the independent and department store channels via new products and line extensions in the U.S., and S&P thinks international growth opportunities are robust, particularly in China. S&P is lifting the fiscal 2004 (Jan.) earnings per share estiamate to $1.01, from $1.00, in tandem with third-quarter results. S&P's 12-month target price remains $22, which incorporates S&P's fiscal 2005 earnings per share estimate of $1.20 and assumes Quiksilver will trade at about 18 times earnings, on par with the S&P SmallCap 600.


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