Markets & Finance

S&P: Still Hold Biogen


Biogen Idec (BIIB): Maintains 3 STARS (hold)

Analyst: Frank DiLorenzo, CFA

Biogen announced the suspension of marketing of multiple sclerosis drug Tysabri after two serious adverse events, including one death, in trials of the drug used in combination with Avonex. These events are related to progressive multifocal leukoencephalopathy, a rare nervous system disorder associated with a suppressed immune system. If Tysabri was to eventually come back on the market, we would expect a black box warning on the product label and zero use with Avonex. We are putting our estimates and target price under review.

Federated Department Stores (FD): Maintains 3 STARS (hold)

May Department Stores (MAY): Maintains 3 STARS (hold)

Analyst: Jason Asaeda

May and Federated Department Stores agreed to merge in a $17 billion deal. Each May share will be converted into $17.75 cash and 0.3115 shares of Federated stock, for a total value of $35.50 per May share. Federated will also assume $6 billion of May's debt. Based on Friday's close, Federated is not offering a premium. The deal is expected to close in third-quarter 2005, subject to regulatory and shareholder approvals. If consummated, we look for May's moderate chains to benefit from Federated's sharper merchandising and marketing, and likely conversion to the Macy's nameplate. We will update after conference call.

Tiffany & Co. (TIF): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Jason Asaeda

Excluding one-time items, Tiffany posted January-quarter earnings per share of 79 cents, vs. 74 cents, a penny below our estimate. Results were hurt by a 15.8 million LIFO inventory charge, higher precious metal and diamond costs, sales growth in higher-margin diamond jewelry, and sales weakness in Japan. We are trimming our fiscal 2006 (ending January) earnings per share estimate by 10 cents to $1.50, on a projected stock option expense. While we see challenges in Japan limiting net sales growth to 8% in fiscal 2006, we look for stronger cash flow on lower capital spending. We are raising our target price by $1 to $31, on updated p-e, price/sales, and discounted-cash-flow analyses.

SAP AG (SAP): Reiterates 4 STARS (buy)

Analyst: Jonathan Rudy, CFA

SAP agrees to acquire Retek, a provider of software solutions to the retail industry, for about $496 million in cash. The aggregate value of the deal is $394 million, net of Retek's cash and investments. The transaction is expected to close in April, pending shareholder and regulatory approvals. The acquisition, net of Retek's cash/investments, is about 2.3 times our 2005 revenue estimate, which is a fair price for a software acquisition in our view. We think proposed acquisition will boost SAP's product offerings in a key industry, and we have a buy recommendation on shares.

USF Corp. (USFC): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Andrew West, CFA

USF and Yellow Roadway announce a definitive agreement by which Yellow will acquire USF for about $1.37 billion in a combination of cash and stock. The deal is expected to close in summer 2005, subject to needed approvals. We believe the offer presents new information about USF's potential value in an industry in which we expect ongoing consolidation. After updating our discounted-cash-flow and relative valuation models, and considering the potential value of the Yellow offer, we are raising our target price to $50 from $31, and upgrading our opinion to hold from sell.

Clear Channel (CCU): Downgrades to 1 STAR (strong sell) from 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Clear Channel offers, in our view, a mixed update on Less-Is-More (L-I-M) plan. With first-quarter radio ads pacing down 5.6%, versus guidance of 3% tp 5% rises for some peers, we think 2005's hit on L-I-M may be more than we expected, as lost revenues on less spot loads could outweigh relatively higher unit pricing and inventory sell-outs from mix shifts from 60 second spots to 30s and 15s. With L-I-M uncertainty, we see flat 2005 margins. We are cutting our 2005 estimate by 2 cents to $1.48, on 5% fewer shares. We are lowering our target price by $8 to $26, on discounted-cash-flow and relative ratio of p-e to long-term free cash flow growth.

Mylan Laboratories (MYL): Reiterates 3 STARS (hold)

Analyst: Herman Saftlas

Mylan Laboratories and King Pharmaceuticals terminated a merger agreement, as we expected. We view this as positive for Mylan as it removes potential dilution. Although we're now more concerned over Mylan's new Nebivolol heart drug and the FDA's recent 3-month postponement in its PDUFA date, we like Mylan's pipeline, which includes 41 ANDAs. Our 12-month target price remains $20, which applies a 15% premium to peer generics p-e's based on our calendar 2005 estimate. We also think Mylan has buyout potential, given last year's $20 per share bid from Carl Icahn, who holds 9.8% of Mylan.


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