Markets & Finance

S&P Starts International Speedway with Hold


International Speedway (ISCA): Initiates 3 STARS (hold)

Analyst: Jason Asaeda

We look for an improved economy, better marketing, and expansion into underserved markets to drive attendance growth at International Speedway's motorsports events in 2004. Higher television broadcast right fees and increased corporate sponsorship and hospitality spending should also lift revenues. However, we see limited downside protection if events are cancelled or postponed because of inclement weather. We project both operating earnings per share and S&P Core earnings per share of $2.34 in fiscal 2004 (Nov.) and $2.70 in fiscal 2005. Our 12-month target price is $51, based on our forward p-e and discounted cash-flow analyses.

Verity (VRTY): Reiterates 3 STARS (hold)

Analyst: Mark Basham

We have modestly raised the beta assumption on the enterprise-software maker that we use in our discounted cash-flow model to 1.3, from 1.2, leaving our assumed volatility measure above the average of Verity's peer group but below its historical beta levels. Our weighted average cost of capital is now 12.8%. On this basis, we are lowering our 12-month target price to $15, from $17. We think a more conservative target price is consistent with an overall reallocation among stocks to more defensive names in anticipation of somewhat higher interest rates.

Cuno (CUNO): Maintains 4 STARS (accumulate)

Analyst: Stewart Scharf

Cuno agreed to acquire WTC Industries, a maker of water filtration and replacement filters, for $100 million in cash and the assumption of $9.5 million in debt. WTC had sales of $28 million in 2003. We expect the planned deal, which is subject to necessary approvals, to broaden Cuno's point-of-use water filtration operations. Cuno expects the deal to be accretive within 12 months of closing, which it expects to happen during the third quarter of fiscal 2004. Our pre-deal earnings per share estimates remain $1.85 for fiscal 2004 (Oct.) and $2.05 for fiscal 2005. We believe the stock deserves a p-e above its historical average. We are raising our 12-month target price to $53, from $50.

Wyeth (WYE): Reiterates 5 STARS (buy)

Analyst: Herman Saftlas; Frank DiLorenzo, CFA

Wyeth yesterday received expanded approval in the European Union for rheumatoid arthritis drug Enbrel, including a combination treatment with methotrexate in rheumatoid arthritis patients who have had inadequate response to disease-modifying antirheumatic drugs. The company also launched Centrum Carb Assist vitamins for individuals on low-carb diets. While we don't see either drug having a significant impact on operations, we think Wyeth shares remain cheap. On our 2005 earnings per share estimate of $2.90, Wyeth's p-e-to-growth ratio of 1.2 is well below the peer average of 1.7. On a discounted cash-flow analysis, our 12-month target price remains $49.

Young Broadcasting (YBTVA): Inititates with 2 STARS (avoid)

Analyst: Amy Glynn, CFA

We see this owner and operator of 11 TV stations benefiting from better 2004 ad spending and easy political ad comparisons. On a projected low double-digit 2004 revenue gain, we see station operating income rising 32% on high operating leverage. We look for a 2004 loss per share of $1.92, vs. 2003's loss of $2.59. While we saw sequential monthly revenue improvement in the first quarter, we view Young's recovery in local and national ads as slower than peers and remain cautious on its shares. Applying a ratio of enterprise value to estimated 2004 EBITDA, in line with the peer average, our 12-month target price is $12.

FormFactor (FORM): Initiates with 3 STARS (hold)

Analyst: Colin McArdle

FormFactor manufactures wafer probe cards for use in the semiconductor production process. We believe spending by semiconductor manufacturers is in the early stages of an extended upturn. However, we favor front-end equipment companies with economies of scale as the market for chip equipment becomes increasingly global. And despite FormFactor's strong technology position, we favor companies with diverse product lines. We estimate 2004 earnings per share of 68 cents and 2005 earnings per share of 85 cents. Applying a peer-group p-e of 25 to our 12-month forward earnings per share estimate of 75 cents, we derive a 12-month target price of $19.


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