Markets & Finance

S&P Keeps Accumulate on Mandalay Resorts


Mandalay Resort (MBG): Maintains 4 STARS (accumulate)

Analyst: Thomas Graves

S&P is raising the 12-month target price for Mandalay Resort to $47, from $43. This reflects S&P's opinion that strengthening room rates in Las Vegas, and prospective benefits from Mandalay's expansion efforts in the city, will enable the stock to trade at a 10% to 15% price-earnings premium (based on calendar 2004 earnings per share estimates) to the S&P 400. Before special items, S&P estimates fiscal 2004 (Jan.) earnings per share for Mandalay at $2.12. For fiscal 2005, S&P projects earnings per share of $2.35. Also, the stock has a dividend yield today of about 2.5%.

Tupperware (TUP): Upgrades to 2 STARS (avoid) from 1 STAR (sell)

Analyst: Howard Choe

Following its steep price decline Thursday and Friday, Tupperware is trading at 13 times S&P's $1.02 earnings per share estimate for 2004, and not far from the 12-month target price of $12. S&P remains concerned about the weak fundamentals of Tupperware's domestic business and the near-term negative impact on the company's cash flow. While Tupperware reiterated its confidence in its ability to pay its dividend, an accelerated deterioration in profitability could call for additional borrowing or a dividend cut. Given the lack of near-term positive catalysts, S&P views the stock as an underperformer.

Human Genome Sciences (HGSI): Maintains 3 STARS (hold)

Analyst: Frank DiLorenzo

Human Genome said Thursday that s Phase II trial of Repifermin to treat venous ulcers did not meet its targets of complete wound closure. The drug is not statistically different from a placebo, and there was no positive trend for Repifermin patients. Although the drug is also in tests to treat mucositis, S&P's expectations are low. S&P now feels that the most firm value is now based on the potential of Human Genome's ABthrax anthrax treatment to receive government funding and FDA approval. S&P's 12-month target price is $15, based on a net present value analysis, but is chiefly contingent on sales of ABthrax.

Barrick Gold (ABX) and Newmont Mining (NEM): Maintains 4 STARS (accumulate); Placer Dome (PDG): Maintains 3 STARS (hold)

Analyst: Leo Larkin

S&P remains positive on the gold sector, but thinks there will be a pullback in the metal and the stocks in the days ahead. S&P views spot gold's failure to close above $389 an ounce on Thursday as negative short-term news. However, S&P believes long-term fundamentals remain intact, including low short-term interest rates, erratic financial market returns, gold industry consolidation, rising commodity prices, and a bear market in the U.S. dollar.

IMC Global (IGL): Maintains 3 STARS (hold)

Analyst: Richard O'Reilly

While the resignation of IMC's president and chief operating officer is a surprise to S&P, it may be part of the company's reorganization program announced in March and designed to save $10 million annually. John Ferguson had joined the company in early 2002. IMC's two business units, phosphates and potash, will now report directly to the current CEO. Separately, S&P believes that potash producers are achieving a portion of July's $10 per ton price increase. After the 35 cents per share loss that S&P sees for 2003, S&P is looking for a small profit in 2004 on greater export volumes.

JetBlue (JBLU): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: James Corridore

S&P is raising the 2004 earnings per share estimate to $1.80, from $1.70, to reflect improved industry demand and JetBlue's market-share growth. The new earnings forecast would be a 33% rise over S&P's 2003 earnings per share estimate of $1.35. S&P projects JetBlue's five-year earnings growth rate at 35%. S&P also set a price-earnings multiple of 35, based on the new $1.80 target, resulting in a $63 12-month target price. The stock is only 5% off this target. However, given earnings per share growth potential and strong relative strength in the stock, S&P recommends holding the shares of this discount air carrier.

Motorola (MOT): Maintains 1 STAR (sell)

Analyst: Kenneth Leon

S&P concurs with a Wall Street Journal article that states Motorola's new camera-ready phones will not be ready for the fourth-quarter holiday season. Representing 40% of total sales, S&P believes a delayed rollout of new handsets may hurt sales and profits. Also, S&P doesn't see a major sales recovery in any of Motorola's key businesses in 2004. S&P thinks the consensus earnings per share estimates of 17 cents for 2003 and 38 cents for 2004 as too high, vs. S&P's own 11 cents and 25 cents estimates, respectively. S&P views a CEO succession as not solving Motorola's competitive problems. Trading at 50 times S&P's 2004 earnings per share estimate, S&P has a bearish outlook and would sell the shares.

Research in Motion (RIMM): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Kenneth Leon

In line with S&P's estimate, handheld device maker RIMM reported a 10 cents second-quarter profit, vs. a loss of 11 cents, excluding special items. S&P forecast 45% sales growth in fiscal 2005, vs. fiscal 2004, with improved earnings quality. S&P sees a product mix shift to higher software revenues, vs. handset sales, to boost gross margins to the 47% to 49% level, from 46.3%, in the second quarter. S&P's new operating earnings per share estimates are 50 cents in fiscal 2004 and $1.35 in fiscal 2005, vs. the prior estimates of 36 cents and $1.01, respectively. S&P's new target price is $44, using a p-e of 32 that's based on the fiscal 2005 earnings per share estimate. Despite shares trading above peers, both on sales and earnings per share multiples, S&P would still accumulate RIMM.

Flextronics (FLEX): Maintains 5 STARS (strong buy)

Analyst: Richard Stice

At Thursday's analysts meeting, contract manufacturer Flextronics detailed its operational framework and business strategy. S&P was encouraged by the success of various cost-cutting initiatives and the potential of the design manufacturing business. The company also reiterated its fiscal 2004 free-cash flow target of $400 million. In addition, Flextronics says it will appeal the verdict in the Beckman Coulter lawsuit, unless the fine is lowered to $10 million or less. On Wednesday a court ruled that Flextronics would pay Beckman Coulter, a medical device maker, $934 million for severing a contract with Beckman to make circuit boards. S&P believes a worst-case scenario would cost Flextronics about $1.70 per share, however, S&P thinks such a scenario is extremely unlikely. The 12-month target price remains $19.


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