Markets & Finance

S&P Says Accumulate Liz Clairborne


Liz Claiborne (LIZ): Maintains 4 STARS (accumulate)

Analyst: Marie Driscoll, CFA

Liz posted fourth-quarter earnings per share of 66 cents, vs. 54 cents, a penny below S&P's estimate. New businesses offset weakness in Liz-branded apparel. S&P is encouraged by progress at retail concepts and expects retail to approach 30% of Liz's business, up from nearly 20%, over the next few years. The company guided 2004 earnings per share of $2.70 to $2.77, vs. $2.55 2003 earnings per share, which S&P sees as overly cautious in light of a resurgence at U.S. department stores. S&P is trimming the 2004 earnings per share estimate by 5 cents, to $2.81. The 12-month target price is $43. S&P finds shares attractive based on a positive view of the breadth of its 32 brands.

Andrx (ADRX): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Herman Saftlas

Andrx posted fourth-quarter earnings per share of 21 cents, vs. a loss of 45 cents, which is 2 cents below S&P's estimate. Results reflected a 29% revenue gain, higher gross margins, lower R&D and selling, general, and administrative spending, and much lower charges. S&P is raising the 2004 earnings per share estimate by 15 cents, to $1.25, helped by new generics and a new line of oral contraceptives. The pipeline includes 30 abbreviated new-drug applications, with many first-filers that have six months of marketing exclusivity. S&P sees new management guiding to new growth opportunities. S&P is raising the target price to $35, from $33, based on a blend of the forward

price-earnings, p-e-to-growth, and

discounted cash-flow models.

Starbucks (SBUX): Maintains 2 STARS (avoid)

Analyst: Dennis Milton

Same-store sales rose 13% and revenues jumped 32%, year to year, in February. Results benefited from strong gift card redemptions and an early start to an annual promotion. Starbucks cautioned that this level of sales performance was unsustainable and reiterated long-term sales guidance of 3% to 7% same-store sales growth and 20% revenue growth. S&P is maintaining the fiscal 2004 earnings per share estimate of 88 cents. At 51 times S&P's fiscal 2004 Standard & Poor's Core Earnings per share estimate of 76 cents, shares are trading at a significant premium to their intrinsic value, according to S&P's discounted cash-flow model.

Nextel Communications (NXTL): Maintains 5 STARS (buy)

Analyst: Kenneth Leon, CPA

S&P sees any weakness in the shares today as an enhanced buying opportunity, after a U.S. Department of Justice inquiry into Nextel's dominant rank in push-to-talk services. The company's initial service was radio dispatch. The Justice Department's antitrust division review is happening as Nextel is seeking Federal Communications Commission approval to move parties to other radio spectrums to free up bandwidth for itself. Verizon Wireless has challenged the company's legal position. S&P doesn't put much weight into the argument that Nextel and Motorola, a large shareholder, kept walkie-talkie service from competitors.

Hughes Electronics (HS): Maintains 4 STARS (accumulate)

Analyst: Tuna Amobi, CPA, CFA

With Hughes controlled by News Corp., the emergence of DirecTV Latin America from bankruptcy will likely presage an eventual culmination of symbiotic relationships with News Corp.'s Sky Latin America, in S&P's view. S&P sees an arduous recovery journey for DirecTV Latin America, amid continued economic malaise in certain parts of that region. But S&P has been encouraged by certain notable reorganization moves, including the reversion of programming costs in local currency. That said, S&P still predicates long-term growth for Hughes on the deployment of advanced services at DirecTV U.S.

TJX Companies (TJX): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Marie Driscoll, CFA

TJX reported better-than-expected January-quarter earnings per share of 27 cents, vs. S&P's 22 cents estimate. An extra week added 5 cents to January-quarter fiscal 2004 (Jan.) earnings per share. Despite flat comps at MarMax, the division's 290-basis-point margin expansion drove a 210-basis-point increase in consolidated operating margin. The off-price retailer, which owns T.J. Maxx, Marshalls, and other stores, says consolidated same-store sales rose 3% as foreign exchange boosted results at international divisions. S&P is raising the fiscal 2005 earnings per share estimate to $1.48, from $1.45. S&P believes shares are fairly valued at $24. S&P is raising the 12-month target price by $3, to $27, which is 16 times S&P's fiscal 2006 earnings per share estimate of $1.70. S&P recommends investors hold the shares.


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