Markets & Finance

S&P Says Buy Gannett


Gannett (GCI): Maintains 5 STARS (buy)

Analyst: William Donald

Gannett posted first-quarter earnings per share of $1.00, vs. 93 cents, a penny better than S&P's estimate, as revenues rose 11%. All segments grew, with particular strength in print and online classified advertising, which climbed nearly 13%. Despite higher newsprint and benefit costs, net income rose 9.8%. S&P is maintaining the 2004 and 2005 earnings per share estimates of $5.15 and $6.00, respectively. At 18 times and and 15 times S&P's 2004 and 2005 estimates, Gannett is well below peer p-e averages. S&P's 12-month target price of $106 assumes forward

price-earnings ratios will remain at current levels. With a 1.1% current dividend yield, S&P would buy the shares.

New York Times (NYT): Maintains 3 STARS (hold)

Analyst: William Donald

New York Times' first-quarter earnings per share of 38 cents is a penny over S&P's estimate, vs. a year-ago's 45 cents, after 7 cents of unusual gains. Revenues rose 2.3%, but S&P thinks an increase of 5.8% for March alone indicates continuing improving trends. The company's operating margin narrowed to 13.6%, from 15.6%, mostly on costs of expansion, newsprint, and benefits. S&P still sees $2.09 for full-year 2004 and a 19% advance to $2.48 for 2005. S&P is raising the 12-month target price by $3, to $53, based on projected forward p-e ratios of 21 and 18, which is aligned with historical peer relationships.

Advanced Micro Devices (AMD): Reiterates 3 STARS (hold)

Analyst: Thomas Smith, CFA

Advanced Micro announced a settlement of patent claims with Intergraph. The microprocessor maker will pay Intergraph $10 million, plus 2% of profits from microprocessor sales for three years (2005-07), with a cap of $5 million per year, making for a total cap of $25 million. S&P estimates the $10 million charge would shave about 2 cents off second-quarter earnings per share. Excluding the charge, S&P still sees Advanced Micro's 2004 earnings per share at 40 cents and 2005's at 70 cents, reflecting S&P's forecast of a chip industry expansion. S&P estimates breakeven results on an S&P Core Earnings basis for 2004. Advanced Micro plans to report first-quarter earnings on April 14.

Allied Capital (ALD): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Robert Hansen, CFA

S&P thinks Allied Capital's shares have dropped in the last several days on concerns that portfolio growth may slow on potentially increased competition from hedge funds for mezzanine investments and a higher level of loan prepayments. But S&P sees higher prepayment fees and gains on warrants in 2004, and expects a special dividend in first-quarter 2005 from the realized gain on the sale of Hillman. S&P is leaving its 2004 earnings per share estimate at $2.50, and is keeping the 12-month target price at $28, which is 11 times the 2004 earnings per share estimate. S&P would hold the shares based Allied's appropriate valuation and attractive dividend.

Crescent Real Estate (CEI): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Raymond Mathis

After a significant decline in recent trading, the real estate investment trust's shares have moved closer to S&P's $15 target price. The dividend yield has grown to 9.8%, a level S&P believes adequately reflects the risks involved with Crescent's dividend coverage. Also, the stock recently fell to a discount to S&P's $17 estimate of net asset value per share. S&P believe Crescent's underperformance relative to diversified REIT peers is now fairly priced into the shares, and thinks further downside risk should be mitigated by the attractive yield.

AnnTaylor Stores (ANN): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Marie Driscoll, CFA

Ann Taylor posted strong March sales momentum at AnnTaylor Loft stores and lifted earnings guidance again, aided by increased full-priced selling, higher merchandise margins, and leveraging of fixed costs. S&P looks for continued incremental improvement at Ann Taylor, with Loft stores executing particularly well. S&P is raising the fiscal 2005 (Jan.) earnings per share estimate to $2.61, from $2.53 and is upping the fiscal 2006 estimate to $3.00, from $2.91. Also, S&P is raising the 12-month target price by $2, to $48, or 16 times S&P's fiscal 2006 estimate, based on the retailer's five-year average forward p-e. The shares trade at a 25% discount to peers based on fiscal 2005 estimates.

Countrywide Financial (CFC): Maintains 4 STARS (accumulate)

Analyst: Erik Eisenstein

Countrywide's loan fundings during March reached $32.3 billion, up from $23.3 billion in February but just a bit below S&P's expecations. S&P is lowering the first-quarter earnings per share estimate to $2.52, from $2.55 and is lowering the 2004 estimate to $10.72, from $10.88, reflecting as well the recent rise in long-term rates. In addition, S&P is initiating a 2005 earnings per share estimate of $11.14, based on the projection of a weaker overall mortgage origination market but better performance in Countrywide's servicing portfolio. S&P's 12-month target price is $97, reflecting a 0.87 p-e-to-growth ratio off S&P's 2005 estimate and 10% five-year earnings per share growth forecast.

Microsoft (MSFT): Reiterates 5 STARS (buy)

Analyst: Jonathan Rudy, CFA

Microsoft has agreed to pay $440 million to settle a patent infringement lawsuit by InterTrust Technologies. The settlement grants Microsoft a license to InterTrust's patents on digital-rights management for protecting movies, music, and other digital content against piracy. S&P believes Microsoft's efforts to settle significant outstanding suits will enable the company to utilize its $52 billion in cash and short-term investments to benefit shareholders via an increased annual or special dividend and significant stock buybacks. S&P would buy Microsoft at a discount to S&P's

discounted cash-flow-derived 12-month target price of $35.


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