Markets & Finance

S&P Says Still Buy IBM Corp.


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

Analyst: Megan Graham Hackett

IBM disclosed that it has received a Wells Notice from the Securities & Exchange Commission related to a specific $11 million transaction with Dollar General, one of IBM's customers in its Retail Solutions unit, amid an SEC probe of that company. A Wells Notice gives IBM a chance to respond to the charge, and thus it could avoid a formal charge, but it also means there could be civil charges. S&P will monitor the situation closely, but doesn't foresee any material charges related to this, and with the shares trading below their intrinsic value of $113, based on S&P's

discounted cash-flow model, S&P views IBM as undervalued.

Ryan's Family Steak House (RYAN): Initiates coverage with 4 STARS (accumulate)

Analyst: Dennis Milton

Ryan operates and franchises more than 350 grill-buffet restaurants, primarily in the Southeastern U.S. S&P expects revenues of $860 million in 2004, an increase of more than 6%, driven by moderate expansion and a 3% increase in average unit volumes. S&P expects that the conversion of company restaurants to a display-cooking format will help boost the average check size. S&P projects 2004 earnings per share of $1.20, a 10% increase from the $1.09 S&P sees for 2003. S&P's 12-month target price of $19 is based on the intrinsic value derived from S&P's discounted cash-flow model.

D.R. Horton (DHI) and Lennar (LEN): Reiterates 5 STARS (buy); KB Home (KBH), Centex (CTX), Pulte Homes (PHM), and Hovnanian Enterprises (HOV): Reiterates 4 STARS (accumulate)

Analysts: James Corridore, Michael Jaffe

Homebuilding stocks were weak Thursday, which S&P attributes to a warning on new orders by Ryland. S&P doesn't cover Ryland, but doesn't think the warning is reflective of homebuilders as a group. Given S&P's view that mortgage rates should stay buyer-friendly through 2005, S&P remains largely bullish on homebuilders.


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