Markets & Finance

S&P Says Buy Qualcomm


Qualcomm (QCOM): Maintains 5 STARS (buy)

Analyst: Kenneth Leon, CPA

S&P is positive on today's announcement of Qualcomm's first delivery of a 90 nanometer low-power Mobile Station Modem solution with its foundry partner, Taiwan Semiconductor, thus reducing mobile application power consumption, boosting processor capability, and enabling the integration of more service features on a single chip. Qualcomm's chipset unit is realizing strong unit volume shipments and higher average selling prices, in S&P's opinion, by targeting 2.5G and 3G wireless handsets. With S&P's expectation that earnings per share comparisons may be easier in the June and September quarters, S&P would buy Qualcomm.

Viacom (VIA.B): Reiterates 5 STARS (buy)

Analyst: Tuna Amobi, CPA, CFA

The CEO, at an industry conference, repeated his 2004 view as the best year in Viacom's history, with momentum building at cable, network, and local businesses. S&P sees 7.5% 2004 revenue and 15% operating income growth, a bit higher than the guidance of 5% to 7% revenue growth and 12% to 14% operating income growth. Perhaps in recognition of the changing landscape, the CEO also broached the possibility of a cable system acquisition, previously dismissed by Viacom. Also, EchoStar dropped Viacom's national channels and CBS-owned and operated stations, but talks should continue. S&P's

discounted cash-flow-based 12-month target price is $50.

Texas Instruments (TXN): Downgrades to 4 STARS (accumulate) from 5 STARS (buy)

Analyst: Thomas Smith, CFA

Texas Instruments guided to the top half of the prior guided range for March-quarter revenue and earnings per share. The analog and DSP chipmaker sees strong demand for many types of semiconductors and reports pricing improving for commodity lines. S&P is raising the earnings per share estimates to $1.01, from 97 cents for 2004, and to $1.37, from $1.35 for 2005. However, with much of the good news already disclosed, and with valuations on rivals becoming relatively more attractive, S&P recommends investors reduce their emphasis on Texas Instruments. S&P is lowering the target price to $38, from $42, which reflects the present trailing price-sales applied to S&P's forward estimate.

Berkshire Hathaway (BRK.A): Maintains 3 STARS (hold)

Analyst: Catherine Seifert

Berkshire Hathaway posted 2003 net income of $5,309 per share, vs. $2,795. Operating earnings per share were $3,531, above S&P's estimate of $3,200. Results reflected significant acquisitions of McLane in May, and Clayton Homes in February, and improved underwriting results, mostly at General Re. S&P is raising the 2004 operating earnings per share estimate to $3,785, from $3,584 on continued favorable insurance underwriting results and modest margin expansion. At 25 times S&P's 2004 estimate -- about two times the peer group average -- S&P views Berkshire Hathaway as adequately valued. S&P's 12-month target price remains $105,000.

Comcast Special (CMCSK) and Class A (CMCSA) 30.00 ): Maintains 5 STARS (buy)

Analyst: Tuna Amobi

At the media industry conference, CEO Brian Roberts reiterated his conviction of the strategic value of a potential combination with Walt Disney. However, he emphasizes that Comcast isn't inclined to bid radically higher than its rejected offer, particularly with the currently limited field of other potential buyers. With Disney's market cap up nearly $8 billion and Comcast's market cap down about $5 billion since the initial bid for Disney, S&P continues to believe that Comcast has ample reasons to exercise value discipline in possible acquisitions, which is consistent with its historical experience.

Pfizer (PFE): Maintains 4 STARS (accumulate)

Analyst: Herman Saftlas

Rivalry has heated up in the $22 billion cholesterol drug market. Studies show Pfizer's Lipitor is 16% better than Bristol-Myers's Pravachol in cutting heart attack deaths. But in other trials, Vytorin (a Zocor/Zetia combination) from Merck and Schering-Plough beat Lipitor in lowering LDL. Despite that, plus new competition from AstraZeneca's Crestor, S&P expects Lipitor to keep dominance of this market. Despite the stock's recent rise, S&P still sees Pfizer as undervalued by 10% to overall market p-e ratios. S&P is raising the target price by $1, to $43, on p-e and discounted cash-flow models.

Halliburton (HAL): Maintains 4 STARS (accumulate)

Analyst: James Kartsonas

The oilfield service company's shares are down today following Halliburton's statement in its annual 10-K filing, where it added that invoice withholding or refunding of Iraq-related work could materially and adversely affect the company's liquidity. As of December 31, Halliburton's quick ratio was at 1.1, down from 1.9 at the end of the third quarter, reflecting reclassification of its asbestos liability as current. The company has about $1.8 billion in cash and an undrawn $700 million revolving credit facility, and S&P expects it to be able to comfortably meet the increasing Iraq-related working capital requirements. S&P's target price is $35.

America West (AWA) and AirTran (AAI): Maintains 5 STARS (buy); American Airline's parent AMR Corp. (AMR), Southwest Air (LUV), Mesa Airlines (MESA), and Northwest Airlines (NWAC): Reiterates 4 STARS (accumulate)

Analyst: James Corridore

Airline stocks are lower today, which S&P attributes to worries about oil prices. Higher oil prices lead to rising costs for airlines, but S&P doesn't view jet fuel prices as significantly above the already high levels that began the year. Also, fuel generally accounts for only 12% to 15% of costs. S&P is focused on those airlines that have improved their cost structures and balance sheets.

Nike (NKE): Maintains 4 STARS (accumulate)

Analyst: Yogeesh Wagle

Nike provided February-quarter earnings per share guidance of 71 cents to 74 cents, above S&P's 66 cents estimate. It believes that revenues grew more than 20% in the quarter, partly on the timing of shipments, which depressed the prior period's revenues, but also reflecting an upturn in U.S. and Asia Pacific businesses, and favorable currency translation. S&P is raising the fiscal 2004 (Aug.) earnings per share estimate to $3.50, from $3.40, and upping fiscal 2005's to $4.00, from $3.91. While FootStar's bankruptcy and its plan to close 165 retail locations is a concern, S&P thinks Nike has adequate retail outlets to pick up the slack and maintain positive earnings per share momentum.


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