Markets & Finance

S&P Says Still Buy Corinthian Colleges


Corinthian Colleges (COCO): Reiterates 5 STARS (buy)

Analyst: Michael Jaffe

Trading in Corinthian was halted earlier after shares plunged 33% Friday. The shares have mostly recovered since Corinthian said it knows of no event to warrant a sell-off. But nervousness surrounds shares of for-profit educators after two recent media reports on allegations that Career Education (CECO) falsified student records. S&P remains positive on Corinthian as rising worker ambition drives education demand and as the company expands via a solid takeover program and campus openings. At 22 times S&P's fiscal 2005 (June) earnings per share estimate, S&P sees Corinthian as attractive at 0.9 times the

price-earnings-to-growth ratio.

General Electric (GE): Reiterates3 STARS (hold)

Analyst: Robert Friedman

S&P is a bit skeptical about GE's announcement that it will bundle several of its industrial/consumer units. S&P's take is that GE's segment reporting disclosure will become less transparent. Moreover, S&P thinks GE's latest moves are little more than cosmetic; thus, they won't resolve the company's biggest challenge, which is the ability to generate long-term 10%-plus free cash growth and a 15%-plus debt-adjusted return on equity, given its enormous revenue and capital base. S&P's

discounted cash-flow-based 12-month target price continues to value GE shares at about $30.

JetBlue Airways (JBLU): Reiterates 3 STARS (hold)

Analyst: James Corridore

Low-cost carrier JetBlue's shares fell 17% early Friday on news it now expects margins to contract in the fourth quarter on price pressures on airfares. JetBlue is apparently seeing weaker holiday demand than S&P was expecting, a situation that's likely to affect most other carriers. S&P expects travel demand to strengthen in 2004 and beyond and is still positive on the JetBlue story, since S&P sees strong revenue growth opportunities at an attractive margin for some time to come. However, given the weaker-than-expected revenue outlook, S&P would not add to positions.

Harley-Davidson (HDI): Maintains 3 STARS (hold)

Analyst: Thomas Graves

S&P is pleased to see motorcycle maker Harley-Davidson doubling its quarterly dividend to 8 cents per share. However, the indicated yield is only 0.7% at the new level. At the end of its third quarter, Harley-Davidson had cash or short-term equivalents totaling $942 million, or about $3.11 per share. S&P sees the stock's recently weak performance vs. the S&P 500 as being partly due to guidance disappointment in mid-October on production capacity and financial services profit for 2004. S&P is keeping the 2003 earnings per share estimate at $2.47 and raising its 2004 estimate to $2.68, from $2.66. S&P also is keeping the 12-month target price of $54.

Intel (INTC): Reiterates 5 STARS (buy)

Analyst: Thomas Smith

The bellwether chipmaker's mid-quarter update improves revenue guidance to the $8.5 to $8.7 billion range, from the prior $8.1 to $8.7 billion range. More importantly, in S&P's view, is Intel's mid-point guidance for gross margin improvement to 62%, from 60%. Excluding the effect of a $600 million, or 6 cents per share, fourth-quarter charge for goodwill impairment in the communications segment, S&P is raising its 2003 earnings per share estimate to 83 cents, from 81 cents, and is upping the 2004 estimate to $1.20, from $1.10. S&P also is hiking its 12-month target price to $45, from $42, based in part on applying the

price-earnings of 28, which is based on S&P's 2004 estimate, to S&P's $1.60 estimate for 2005.

Citigroup (C): Maintains 5 STARS (buy)

Analyst: Mark Morgan

S&P is adjusting its estimates higher to reflect expectations of improving credit quality in Citigroup's commercial and consumer credit businesses, and slightly higher capital markets activity. S&P's new 2003 earnings per share estimate is $3.44, raised from $3.40, and 2004's estimate is $3.87, raised from $3.80. S&P thinks Citigroup's mix of high-growth consumer businesses, combined with improving corporate lending and investment banking markets, should accelerate earnings growth through 2004. S&P's 12-month target price remains $57, which is 14.7 times the 2004 estimate, in line with Citigroup's historical average.

IBM Corp. (IBM): Reiterates 5 STARS (buy)

Analyst: Megan Graham-Hackett

At the company's fall analyst meeting, IBM stated that it's now focused on revenue growth. IBM plans to focus on internal investments, but says it could make another $5 billion in acquisitions if attractive opportunities arise. The company also reiterated that it's well-positioned for the information-technology upturn, given its broad solutions offerings and deep industry knowledge, and S&P concurs with this assessment. S&P is keeping the 12-month target price and earnings per share estimates, but notes IBM cited signs of better customer spending.

U.S. Steel (X) and AK Steel (AKS): Maintains 3 STARS (hold); Nucor (NUE): Reiterates 5 STARS (buy)

Analyst: Leo Larkin, James Sanders

President Bush announced Thursday that tariffs on imported steel would be lifted. Near term, S&P believes this action will lead to further consolidation of a domestic steel industry that's rife with financially weak companies. However, longer term, S&P anticipates that a much more concentrated group of companies will likely emerge that should be able to more effectively compete in the global steel market.


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