Markets & Finance

S&P Says Accumulate Boston Scientific on Taxus Data


Boston Scientific (BSX): Reiterates 4 STARS (accumulate)

Analyst: Robert Gold

On Monday, Boston Scientific released its Taxus IV drug-coated coronary stent data, which showed results that were superior to S&P's expectations, or at least comparable to Johnson & Johnson's Cypher stent, in S&P's opinion. In a clinical study, the company said Taxus IV dramatically reduced the rate of vessel reblockage among heart disease patients. While S&P expects more insights on the data at Monday night's analyst meeting, for now, S&P sees 2004 drug-coated stent sales approximating $1.9 billion, assuming an expedited FDA review and a launch in early 2004. S&P is boosting its 2004 earnings per share estimate by 45 cents, to $3.30, assuming average selling prices in the $2,700 per unit area. Also, S&P is raising the 12-month target price to $80, from $68.

AllState (ALL): Maintains 5 STARS (buy); Safeco (SAFC): Maintains 3 STARS (hold); and Chubb (CB): Reiterates 4 STARS (accumulate)

Analyst: Catherine Seifert

S&P remains positive, longer term, on the property-casualty insurance industry, due to the premium pricing power that S&P thinks still exists. S&P shares the market's near-term concern that Hurricane Isabel could rival Andrew's $25-plus billion in insured losses. Allstate has the greatest exposure to this storm, but Safeco and Chubb are also exposed. Historically, insurance stocks have traded up in the aftermath of a disaster, although the industry's capital position is more leveraged going into this storm.

Footstar (FTS): Maintains 3 STARS (hold)

Analyst: Yogeesh Wagle

Footstar announced the departure of its CEO, and the preliminary results of a financial restatement, which it expects will reduce earnings by between $48 million to $53 million before minority interest and taxes for the period covering 1997 to mid 2002. In 2003, including higher interest costs due to an increased level of borrowings and costs related to start ups and new programs, S&P is cutting the earnings outlook to a loss of 64 cents, from $1.14 earnings per share. S&P expect Footstar will swing to a profit in 2004, boosted by the growing Wal-Mart business and better results in the athletic segment, but with the overhang from possible shareholder actions, S&P would not add to positions.

Vodafone (VOD): Downgrades to 2 STARS (avoid) from 5 STARS (buy)

Analyst: Todd Rosenbluth

S&P's analysis suggests that the global wireless industry is continuing to fragment and there is not a compelling opportunity for a global consolidator such as Vodafone to squeeze incremental profitability. Based on S&P's revised cash flow analysis, which assumes expected free cash flow growth of 4.45% to perpetuity, Vodafone shares are about 13% overvalued. S&P also contends that the company is trading above its peers on an enterprise value/EBITDA-to-growth basis. S&P's sum-of-the-parts analysis shows slightly lower overvaluation. The 12-month target price is $17.

Dell (DELL): Reiterates 3 STARS (hold)

Analyst: Megan Graham Hackett

S&P upgraded its target price on Dell to $36 from $32. With the positive revision to International Data Corp.'s second-quarter 2003 PC unit shipment growth to 9.6%, from the prior 7.6%, S&P is increasing the PC unit forecast for 2003 to 8%, from 5%. S&P thinks Dell should continue to take market share in PCs, but notes revenue upside is limited due to a stiff pricing environment. Still, S&P is upping the fiscal 2005 (Jan.) estimate by 5 cents, to $1.20, on an assumption that Dell can gain efficiencies from the higher volumes. S&P's new $36 target price is based on a higher free cash flow growth assumption in S&P's discounted cash flow model, and a revised price-sales analysis.

DaimlerChrysler (DCX): Maintains 2 STARS (avoid)

Analyst: Efraim Levy

DaimlerChrysler's U.S. unit reached a tentative agreement with the United Auto Workers. Details of the pact were not provided. Local union leadership and then the UAW's membership must also approve the agreement. General Motors and Ford have not reached an accord with the union. The Big Three are looking to reduce employee costs while gaining productivity through increased flexibility in using labor. The union is looking to keep jobs and keep or increase employee benefits. Even with an agreement, S&P thinks competitive challenges remain for DaimlerChrysler.


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