Markets & Finance

S&P: Humana Still a Strong Buy


Humana (HUM): Reiterates 5 STARS (strong buy)

Analyst: Phillip Seligman

Humana's first-quarter operating EPS of 53 cents, vs. 41 cents one year earlier, is 2 cents above our estimate. We are encouraged by underwriting discipline, improved risk profile via admin-service-only products and a rise in individual members, by consumer choice plans, and medical and SG&A cost controls. We are also encouraged by a rise in Medicare membership and profitability. We still see 2005 EPS of $2.25 after one-time Medicare ramp-up costs, and based on Medicare expansion plans, we expect $2.60 in 2006 before stock option expense. We are raising our target price by $1 to $44 on Humana's above-peer forward p-e multiple of 17 times and our our 2006 estimate.

Tyson Foods (TSN): Reiterates 4 STARS (buy)

Analyst: Joseph Agnese

The chicken and beef processor's March-quarter operating EPS of 21 cents, vs. 35 cents, is 4 cents below our estimate. Beef margins continued to be pressured by depressed live cattle supplies resulting from restrictions on imports of Canadian cattle. Tyson narrowed its its fiscal 2005 (ending September) EPS guidance to a range of $1.05 to $1.20, from a range of $1.05 to $1.30, on the assumption the Canadian border will remain closed in fiscal 2005. But with chicken results benefiting from lower feed costs and pork results boosted by strong demand, we are keeping our fiscal 2005 EPS estimate at $1.15. We are raising our 12-month target price by $1, to $21, on our updated

discounted cash-flow and p-e analyses.

Powerwave Technologies (TSN): Reiterates 5 STARS (strong buy)

Analyst: Kenneth Leon, CPA

Powerwave's first-quarter EPS of 8 cents, vs. a 5-cent loss per share, before one-time items, is one cent above our estimate. Strong sales were driven by demand from OEMs and system upgrades by Cingular Wireless. Gross margins widened a point to 26.6% in the first quarter with the cost savings from 2004 acquisitions. We believe Powerwave is gaining share on its direct competitor, 2-STARS (sell) ranked Andrew Corp. (ANDW). We are raising our 2005 EPS estimate by one cent, to 38 cents. Based on our positive outlook for orders and sales, we are raising our target price to $11 from $10. At 1.5 times 2005 sales, below peers, we find Powerwave attractive.

Neiman-Marcus Group (NMG.A): Reiterates 3 STARS (hold)

Analyst: Jason Asaeda

Neiman-Marcus agreed to be acquired by Texas Pacific Group and Warburg Pincus LLC for $5.1 billion in cash, or $100 per share. The planned deal is expected to close by Nov. 1, subject to needed approvals. While benefiting from a strong recovery in the luxury market in recent years, we think the company has done little to explore new avenues of growth, with the exception of investments in Laura Mercier and Kate Spade. New ownership could serve as impetus for new brand acquisitions, or more aggressive store growth. We are raising our target price for Neiman-Marcus to $100 from $84 based on terms of the deal.


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