Markets & Finance

S&P Upgrades AmeriTrade to Accumulate


AmeriTrade (AMTD): Upgrades to 4 STARS (accumulate), from 3 STARS (hold)

Analyst: Robert Hansen

The online brokerage firm's December-quarter earnings per share of 17 cents, vs. 5 cents, beats S&P's 14 estimate. Results benefited from an 11% gain from the September quarter in average trades per day, higher margin balances, and a lower-than-expected operating expense. S&P is raising the fiscal 2004 (Sep.) earnings per share estimate to 73 cents, from 60 cents, on AmeriTrade's 19% sequential jump in client assets and a surge in average trades per day to 250,000 in January, to date. S&P is raising the 12-month target price to $20, from $15, which is 27 times S&P's fiscal 2004 estimate, above peers. S&P would accumulate AmeriTrade, based on its market share gains, operating leverage, and stable pricing.

Forest Laboratories (FRX): Upgrades to 4 STARS (accumulate), from 3 STARS (hold)

Analyst: Herman Saftlas

Forest Labs posted a 28% gain in December-quarter earnings per share to 60 cents, matching S&P's estimate. Sales of antidepressants rose 21%, helped by wholesaler inventory stocking. The company has already shifted most of its antidepressant sales from patent-expiring Celexa, to Lexapro. S&P sees more than $1 billion in revenue potential for Forest's new Nemenda for Alzheimer's. S&P also expects part of the company's $2 billion in cash flow over the next few years to be used to fund new in-licensing deals and acquisitions. S&P is raising the 12-month target price by $15, to $85, based on a blend of S&P's

price-earnings-to-growth and

discounted cash-flow analyses.

Citigroup (C): Maintains 5 STARS (buy)

Analyst: Mark Morgan

The financial-serivces firm posted fourth-quarter earnings per share of 91 cents, vs. 47 cents, a penny below S&P's estimate. Fourth-quarter losses of $351 million from Parmalat were partially offset by $200 million in reserve releases, and S&P estimates that both factors together impacted earnings per share by about 2 cents. Revenue growth of 13% beat S&P's expectations, driven by strong results in the credit card, investment management, and capital markets segments. S&P's 2004 earnings per share estimate remains $3.87, and S&P is establishing an 2005 estimate of $4.41. Also, S&P is raising the 12-month target price to $60, from $57, based on shares trading at 13.5 times the 2005 estimate, which is in line with the historical average.

Harris Corp. (HRS): Upgrades to 4 STARS (accumulate), from 3 STARS (hold)

Analyst: Ari Bensinger

Harris, a provider of communications equipment, sees December-quarter sales at $605 million, and earnings per share at 50 cents, above S&P's $580 million and 40 cents estimates, reflecting strong demand in its government-related divisions (70% of sales). S&P expects this operating momentum to continue throughout 2004 and is raising the fiscal 2004 (Jun.) earnings per share to $2.00, from $1.70. S&P also thinks restructuring initiatives in the network support and microwave segments are tracking ahead of plan. S&P is raising the 12-month target price to $52, from $36, based on S&P's 13% long-term earnings per share growth forecast and a peer average p-e-to-growth ratio of 2.

Black Box (BBOX): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Markos Kaminis

The technical-service firm posted December-quarter earnings per share of 66 cents, vs. 73 cents, in line with S&P's estimate but 3 cents ahead of consensus. Revenues fell 13% as North American sales fell, with overseas growth benefiting from foreign-exchange translation. Sequential sales exhibited stability by rising 3%. Shares are at a p-e of 19 times S&P's fiscal 2005 (Mar.) earnings per share estimate of $2.95; S&P sees 13% growth in fiscal 2005 and 15% growth long-term. Based on a discounted cash-flow analysis, S&P is upping the 12-month target price to $66, from $49. S&P thinks today's sharp price rise may be partly due to a squeeze of short interests.

Bank One (ONE): Reiterates 4 STARS (accumulate)

Analyst: Mark Morgan

Bank One reported fourth-quarter earnings per share of 82 cents, before 5 cents of one-time gains, vs. 72 cents -- above S&P's 79 cents estimate. The financial-services company cited continued strength in retail banking and credit-card lending, and further improvements in commercial-loan quality. Also, the net interest margin expanded 5 basis points from the third quarter. S&P is maintaining the 2004 earnings per share estimate of $3.30.

S&P expects J.P. Morgan to close its acquisition of Bank One in the second quarter, pending shareholder and regulatory approvals. (J.P. Morgan offered to buy the company in a $60 billion deal, prompting S&P to upgrade both companies to 4 STARS (accumulate), from 2 STARS (avoid), on January 15. S&P's 12-month target price for Bank One is $58, based on the deal conversion ratio of 1.32 shares to S&P's target price for J.P. Morgan of $44.


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