Markets & Finance

S&P Says Buy Oxford Health


Oxford Health (OHP): Maintains 5 STARS (buy)

Analyst: Phillip Seligman

Despite WellChoice's announcement that it has ended takeover plans for Oxford, S&P remains positive on Oxford's shares. With no negative accounting issues, S&P views the price as the problem, particularly given Oxford's run-up since an article in The Wall Street Journal revealed the merger talks in early April. Not only does Oxford now offer a lower entry point for investors, S&P thinks both companies are now open to other suitors, and believes Oxford's best-in-class profit per member, and its reputation for customer service, brings a lot to the table. S&P's 12-month target price remains $63.

Aon (AOC) and Marsh & McLennan (MMC): Maintains 3 STARS (hold); Willis Group (WSH): Reiterates 4 STARS (accumulate)

Analyst: Susan Dawkins

New York Attorney General Eliot Spitzer sent subpoenas to the three largest insurance brokers in a preliminary inquiry into compensation agreements between brokers and insurance companies. All three report that they are cooperating and that the inquiries relate to long-standing industry practices. Aon shares are down this morning about 4% on the news, while Marsh & McLennan and Willis have each fallen off about 2%. S&P is waiting to learn more about the investigations before reviewing its rankings on these shares.

Amazon.com (AMZN): Reiterates 3 STARS (hold)

Analyst: Jason Asaeda

Online bookseller Amazon posted first-quarter earnings per share of 23 cents, vs. 10 cents, beating S&P's estimate by 7 cents. Results are before $7.1 million (vs. $27.3 million) in stock-based compensation and the re-measurement of Euro notes. First-quarter GAAP earnings per share was 26 cents, vs. a loss of 3 cents. Results benefited from an $87 million favorable currency impact on sales as well as ongoing cost controls. Amazon increased its 2004 sales guidance to $6.45 billion to $6.85 billion, from $6.2 billion to $6.7 billion. S&P is raising the 2004 earnings per share estimate by 15 cents, to 96 cents. With a 12-month target price of $51, based on a

discounted cash-flow analysis, S&P would hold the shares.

Gilead Sciences (GILD): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)

Analyst: Frank DiLorenzo, CFA

Gilead reported first-quarter proforma earnings per share of 45 cents, vs. 24 cents, sharply above S&P's 30 cents estimate. Sales of HIV and AIDS treatment Viread were $193 million, which is $14 million above S&P's view and well above a year-ago's $107 million, partly on inventory build, but mostly reflecting demand growth. S&P is raising the 2004 Viread sales forecast to $782 million, from $743 million. A combination tablet of Viread/Emtriva could launch in early 2005, but S&P thinks Gilead's pipeline is then weak. S&P is increasing the 2004 estimate to $1.66, from $1.48, and upping the 2005 estimate to $1.97, from $1.92. On a new discounted cash-flow analysis, S&P is raising the 12-month target price to $72, from $63.

DaimlerChrysler (DCX): Reiterates 2 STARS (avoid)

Analysts: Yannick Mathieu, CFA; Efraim Levy, CFA

Daimler declined to invest additional cash in Japanese carmaker Mitsubishi Motors. S&P says it expects Daimler's 37% stake in Mitsubishi to likely be sold if other Mitsubishi shareholders proceed with their rescue plan and investment in rehabilitating Mitsubishi. The savings from not contributing additional cash should allow Daimler greater flexibility to either invest further in Chrysler, or a new Asian strategy, including additional investments in China. However, S&P believes the decision adds to the complexity of Daimler potentially having to pull out of common projects with Mitsubishi.


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