Markets & Finance

S&P Says Accumulate Goldman Sachs


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

Analyst: Robert Hansen

At a conference Thursday, Goldman Sachs was optimistic about its fixed-income business. S&P expects fixed income to stay strong in fiscal 2004 (Nov), given the steep yield curve and breadth of revenues. S&P sees investment banking rebounding on higher merger & acquisitions activity and equity underwriting, driven by improved investor confidence. S&P sees fiscal 2003 earnings per share at $5.30 and fiscal 2004 earnings per share at $6.09. Also, S&P is upping the target price to $110, from $105, giving the shares a

price-earnings

of 18, based on S&P's fiscal 2004 estimate. This is in line with S&P's peer group. Based on a view of the company's global footprint, operating leverage, and strong market position, S&P would accumulate.

Wachovia (WB): Maintains 5 STARS (buy)

Analyst: Evan Momios

S&P thinks Wachovia's stock has been weak in recent weeks on legal and regulatory concerns. In S&P's opinion, the focus on near-term risks has diverted investor attention from the company's long-term fundamental strengths and competitive advantages. S&P believes Wachovia's diversified model and dominant retail network in solid markets can generate long-term earnings per share growth of 11%. S&P is keeping the 2003 and 2004 earnings per share estimates at $3.35 and $3.71, respectively. The 12-month target price stays $55, which is nearly 15 times S&P's 2004 earnings per share estimate and in line with intrinsic value estimates.

Williams-Sonoma (WSM): Reiterates3 STARS (hold)

Analyst: Yogeesh Wagle

The kitchen-goods retailer's earnings per share of 20 cents, vs. 7 cents beat S&P's estimate by a penny. Sales rose 20%, driven by a 28% increase in direct to consumer sales, including 71% higher Internet-based sales. Store sales grew 15%, including a 5.6% same-store gain. S&P believes Williams-Sonoma has made solid strides in customer service and supply-chain initiatives. However, S&P sees risks from its foray into Pottery Barn Teens and from its 30% inventory growth in the third quarter. S&P is raising the 12-month target price to $40 from $32, or 26 times S&P's $1.53 fiscal 2005 (Jan.) earnings per share estimate, near the stock's historical average p-e.

Intuit (INTU): Maintains3 STARS (hold)

Analyst: Scott Kessler

Before items related to acquisitions, financial-software maker Intuit posted a seasonally slow October-quarter loss per share of 24 cents, vs. a loss of 21 cents, in line with S&P's forecast and 3 cents better than the Street. GAAP per-share losses were 26 cents, vs. 27 cents. Revenues rose 14%, paced by the small-business segment. Given Intuit's market-leading franchises, S&P is unsure what customer reaction will be to its elimination of Turbo Tax's product activation feature, which S&P views as a positive step. Based on S&P's revised

discounted cash-flow analysis, S&P is trimming the 12-month target price by $1, to $49.

Hewlett-Packard (HPQ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

Computer maker H-P posted October-quarter operating earnings per share of 36 cents, vs. 24 cents, a penny above S&P's estimate. Earnings per share quality is mixed, in S&P's opinion. Revenues of $19.9 billion were above S&P's model, but gross margin was 100 basis points below, reflecting aggressive PC pricing. This was offset by sharp operating expense cuts. H-P met its goal of achieving profit in all segments. It sees January-quarter revenues of $19.1 billion to $19.5 billion, and earnings per share of 35 cents, above S&P's 31 cents estimate. S&P still sees fiscal 2004 (Oct.) earnings per share at $1.43, but is upping the 12-month target price by $2, to $24, based on a higher cash-flow estimate in S&P's discounted cash-flow analysis.

NPS Pharmaceuticals (NPSP): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Frank DiLorenzo

Data from a two-year carcinogenicity study in rats showed that in low doses, NPS' Preos, its treatment for osteoporosis, does not show a trend toward osteosarcoma, or bone cancer. The higher doses, however, do show a increase in the incidence of osteosarcoma. S&P thinks the FDA may require a "Black Box" warning label for Preos. However, S&P preliminarily believes the trend toward cancer is less prevalent for Preos, vs. Lilly's Forteo, based on the rat data. S&P assumes Preos will be approved by the second quarter of 2005. Also, S&P assumes Cinacalcet, NPS' hyperparathyroidism treatment for patients with chronic kidney disease, will receive FDA approval by the second quarter of 2004, which could provide a catalyst for shares. On a slight revision to the net-present value analysis, S&P is raising the 12-month target price to $35, from $33.

Longs Drug Stores (LDG): Downgrades to 2 STARS (avoid) from 3 STARS (hold)

Analyst: Joseph Agnese

The drugstore chain posted October-quarter earnings per share of 14 cents, vs. 8 cents -- a penny above S&P's estimate. Results were aided by improved expense control and a benefit of 1 cent from the ongoing grocery strike in California. Longs reiterated the January-quarter earnings per share guidance at 38 cents to 41 cents, before possible grocery strike benefits. S&P still doesn't see any real evidence regarding the possible sale of the company. Despite improved October-quarter results, S&P views Longs shares as fully valued, with a p-e of 22 that's based on at S&P's fiscal 2005 (Jan.) earnings per share estimate of $1.10 -- above peers and the five-year historical average. S&P's 12-month target price remains $23.


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