Markets & Finance

S&P Says Buy EMC Corp.


EMC Corp. (EMC): Maintains 5 STARS (buy)

Analyst: Richard Stice, CFA

The latest data from analysis firm IDC shows that industry external disk-storage systems revenue rose 8% in the second quarter, aided by improvement in Asia/Pacific. EMC bested its key competitors with a gain of 19% and strengthened its leadership position in the category, in which it now holds a 250-basis-point advantage. We forecast further share gains in upcoming periods as its recent acquisitions become integrated and new product offerings gain traction in the marketplace. Our 12-month target price of $17 is based on a combination of relative p-e-to-growth and discounted cash flow analyses.

US Airways Group (UAIR): Reiterates 3 STARS (hold)

Analyst: James Corridore

US Air's pilots union has refused to submit the company's concession plan to its members for a vote, which we think could force US Air to file Chapter 11 bankruptcy in the next week or two. We believe a filing is highly likely and remain concerned about the company's long-term viability. But over the next year or so, as US Air potentially fights through a bankruptcy restructuring, we think the stock could rise on investor speculation. Stockholders could see a better exit price if they hold on. We have cut our 12-month target price to $2.50 from $3.00.

Texas Instruments (TXN): Maintains 3 STARS (hold)

Analyst: Amrit Tewary

Ahead of Texas Instruments' third-quarter mid-quarter update, we see earnings per share of 25 cents for the quarter, below the company's prior 26 cents to 29 cents guidance. Also, we project third-quarter revenues of about $3.27 billion, vs. guidance of $3.20 billion to $3.44 billion. We are keeping our earnings per share estimates at 96 cents for full 2004, $1.07 for 2005, and $1.00 for 2006. Despite a significant recent decline in Texas Instruments' share price, we think current valuation multiples for the stock are warranted, reflecting what we see as elevated macro and channel inventory risks. Our 12-month target price remains $21, based on our p-e model.

Seagate Technology (STX): Still 1 STARS (sell)

Analyst: Richard Stice, CFA

Seagate says its September quarter is exhibiting a normal seasonal pattern to this point, with blended average unit prices declining at a rate of 3% to 4%. It sees unit volume in the desktop market coming in below expectations; however, it notes that the consumer electronics segment is performing better than anticipated. We are keeping our fiscal 2005 (June) earnings per share estimate at 33 cents, with an S&P Core EPS estimate of 22 cents. We note that visibility remains limited, and are concerned by the potential for aggressive pricing tactics by competitors. Our 12-month target price remains $8.

McAfee (MFE): Reiterates 5 STARS (buy)

Analyst: Jonathan Rudy, CFA

McAfee announced on Sept. 7 that its chief operating and financial officer, Stephen Richards, plans to retire at the end of 2004. While we are disappointed to see him leave, we believe that most of the significant work of transforming McAfee into a pure-play Internet-security company has been completed. We expect that this new focus will drive faster growth and higher profitability, and believe that McAfee remains attractive at a discount to its peers on ratios of enterprise value to sales, and p-e to growth. Based on relative analyses of these metrics, we are raising our 12-month target price to $25 from $22.

Circuit City Stores (CC): Reiterates 3 STARS (hold)

Analyst: Amy Glynn, CFA

The retailer's August-quarter sales rose 8.9%, with comparable-store sales up 2.9%, vs. a 5% decline last year. Gains were led by sales of high-end TVs, digital imaging products and portable audio products. Circuit City notes that August sales were weaker than the prior two months amid a softer retail climate and the Labor Day shift. However, we still think Circuit City is on target to meet our forecast of fiscal 2005 (ending February) mid-single digit percentage revenue growth. Our fiscal 2005 EPS estimate remains at 31 cents, and our 12-month target price at $14, based on historical price-to-sales and, in our view, a warranted discount to 5-STARS ranked Best Buy (BBY).


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