Markets & Finance

S&P Upgrades Aetna to Buy


Aetna (AET): Upgrades to 5 STARS (buy) from 4 STARS (accumulate)

Analyst: Phillip Seligman

Boosted by higher-than-expected enrollment and margin expansion, Aetna sees first-quarter 2004 earnings per share of of $1.68 to $1.73, and sees full-year earnings of $6.60 to $6.75. As a result, S&P is increasing the full-year earnings per share estimate by 40 cents, to $6.75. Continuing medical cost-trend moderation and increased leverage of operating costs over a larger member base are helping results. Moreover, S&P believes the health insurer is exceeding the high end of its 4% to 5.5% enrollment growth target and is also gaining market share. S&P is raising the 12-month target price by $23, to $105, based on forward

price-earnings estimates relative to peers and the S&P 500.

Oracle (ORCL): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy, CFA

The database-software giant posted February-quarter earnings per share of 12 cents, vs. 11 cents, a penny better than S&P's estimate. Revenue of $2.51 billion was slightly better than S&P's $2.48 billion estimate, and benefitted by 7% from a positive foreign-exchange impact. Database business revenue rose a solid 14%, but application revenue fell 5%. S&P is raising the fiscal 2004 (May) earnings per share estimate to 49 cents, from 47 cents, and sees 52 cents in fiscal 2005. At 24 times S&P's calendar 51 cents 2005 earnings per share estimate, Oracle is at a discount to peers, but with its hostile takeover battle for PeopleSoft, S&P would not add to positions. However, with a strong balance sheet and high profitability, S&P would hold.

Altera (ALTR): Maintains 4 STARS (accumulate)

Analyst: Thomas Smith, CFA

Chipmaker Altera guided to the high end of the previous guidance for March-quarter revenue growth of 6% to 8% from the December quarter. S&P is maintaining its projection of 8%, and is keeping the earnings per share estimates of 60 cents for 2004, and 80 cents for 2005. S&P's chip foundry analyst in Asia reported strong wafer production at foundries in recent weeks, which bodes well for sales at Altera and other fabless chipmakers that account for that outsourced production. S&P is lowering the 12-month target price to $28, from $30, reflecting a more conservative p-e of 35, near peers, applied to S&P's 2005 earnings per share estimate.

b>AmeriTrade (AMTD): Reiterates 5 STARS (buy)

Analyst: Robert Hansen, CFA

AmeriTrade reported opening 28,000 net new accounts and an average daily volume of 197,000 trades in February, slightly above S&P's estimates. Client margin loan balances rose to $3.7 billion, from $3 billion at the end of December, which should benefit interest income in fiscal 2004 (Sep.). S&P is impressed with the online brokerage's growth in client assets to $73.3 billion, including $5 billion from the Bidwell purchase, given the 1.3% gain in the Nasdaq through February. S&P's fiscal 2004 earnings per share estimate remains 78 cents. S&P would buy AmeriTrade shares. The 12-month target price is $23, which is 30 times the fiscal 2004 earnings per share estimate and a premium to peers.


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