Pfizer (PFE): Reiterates 3 STARS (hold)
Analyst: Herman Saftlas
Pfizer announced Lyrica (its follow-on for off-patent Neurontin) was cleared by the FDA for neuropathic pain, but it is still under review for epileptic seizures. Lyrica will be a scheduled drug, with a launch expected after DEA classification. We still see over $1 billion potential for Lyrica. We expect growth in Lipitor and other drugs to help offset likely significant erosion in Celebrex/Bextra. We believe Pfizer's pipeline is strong, with much potential seen for Lipitor/torcetrapib. The dividend yield is 2.8%. Our target price is $30, which factors in a below-peer multiple of 13.7 times our 2005 earnings per share estimate.
Sprint (FON): Reiterates 3 STARS (hold)
Analyst: Kenneth Leon, CPA
We are raising our 12-month target price to $26 from $23, based on what we see as improving fundamentals at Sprint and our positive view of the proposed merger with Nextel Communications. We applied a higher EBITDA multiple for Sprint's wireless operations than for its peers, assuming a higher growth profile, strong margins and the highest mix of business users in the industry. The merger is not expected to close until the second half of 2005, subject to required approvals. With Sprint's stronger earnings per share growth than wireline peers, we would hold the shares.
Walgreen (WAG): Reiterates 5 STARS (strong buy)
Analyst: Joseph Agnese
Walgreen posted November-quarter operating earnings per share of 31 cents, vs. 25 cents, and 2 cents ahead of our view. Total sales rose 13.4%, in line with our estimate, on 9.4% higher comp-store sales and a 9.1% rise in total store count. Margins improved more than we expected on an improved digital photofinishing business, due to increased investment in in-store photo lab equipment. We believe Walgreen is on pace to raise store count by 8.0% in fiscal 2005 (ending August) and reach its goal of 7,000 stores by 2010. We are raising our fiscal 2005 earnings per share estimate by 3 cents to $1.55, and our 12-month target price by $3 to $48, on a revised discounted-cash-flow and p-e analyses.
Linens 'n Things (LIN): Reiterates 3 STARS (hold)
Analyst: Michael Souers
We believe this holiday season was difficult for the home furnishings industry, with fairly light traffic and increased promotional activity. As a result, we are lowering our fourth-quarter earnings per share estimate for Linens 'n Things to 97 cents from $1.01, and our 2005 estimate to $1.85 from $1.90. However, we are raising our 12-month target price to $28 from $24, 15 times our 2005 earnings per share estimate, based on valuation. Linens 'n Things is trading at trough p-e levels, and at a sizeable discount to peers. We think this discount will narrow in 2005 as Linens 'n Things's merchandising initiatives likely take effect.
China Life Insurance (LFC): Reiterates 3 STARS (hold)
Analyst: Gregory Simcik, CFA
In a 6-K filing, China Life Insurance's board states that it believes it has not been notified by the SEC that the company is the subject of a formal investigation. We think this announcement is in response to unconfirmed reports by the Financial Times that the SEC has formalized an investigation of China Life Insurance's 2004 IPO for alleged accounting irregularities. Despite China Life Insurance's statement, we think investors should remain cautious of developments along this front, as China Life Insurance also indicates that "shareholders and potential investors of the company should exercise caution when dealing in the shares in the company."
Liberty Property Trust (LRY): Reiterates 3 STARS (hold)
Analyst: Mark Hebeka, CFA
Liberty Property Trust announced the planned development of a 1.2 million square foot, 57-story office tower in Philadelphia, named the Comcast Center. Projected construction costs are $435 million, with occupancy to begin in fall 2007. Comcast has signed a 15-1/2 year lease and will initially occupy 534,000 square feet. Our 2004 and 2005 earnings per share estimates remain $1.70 and $1.71, and our 2004 and 2005 funds from operations/share forecasts stay $3.22 and $3.24. We raise our target price to $45 from $42, 14 times our 2005 funds from opeartions/share estimate, a slight premium to peers based on better future prospects we see.