Markets & Finance

S&P Upgrades Priceline.com to Hold


Priceline.com (PCLN): Upgrading to 3 STARS (hold) from 2 STARS (sell)

Analyst: Scott Kessler

Adjusting for certain items, first-quarter earnings per share of 21 cents, vs. 10 cents a year ago, is one cent above our forecast. GAAP EPS was 11 cents, vs. 12 cents. Revenue rose 4%, lower than our forecast, due in part to the continuing decline in opaque airline sales and to challenges in rental cars. Gross margin improved notably on a more favorable revenue mix. We are raising our 2005 EPS estimate to $1.22 from $1.15 on a material increase in our gross margin projection and incremental upside from the company's recently launched merchant hotel offering. We are raising our target price to $25 from $21, based on our updated discounted cash flow (DCF) and peer analyses.

Chiron (CHIR): Downgrades to 1 STAR (strong sell) from 3 STARS (hold)

Analyst: Frank DiLorenzo, CFA

Chiron has said it may produce 25 million to 30 million Fluvirin doses for the 2005/2006 season, assuming FDA okay, but we do not see that many. We think Sanofi Pasteur's Fluzone will be the vaccine of choice, with up to 60 million doses supplied. The CDC estimates 70 million doses may be needed to cover priority groups, and GlaxoSmithKline may enter the market with 10 million doses. Thus, there may not be room for Chiron's 25 million to 30 million. We assume a maximum 20 million, and lower our 2005 earnings per share estimate to $1.42 from $1.51, and see 2006 earnings per share at $1.66. Assuming an adjusted p-e of 16 times, at the bottom of the 2006 peer range, we are cutting our target price by $14 to $29.

Toyota Motors (TM): Reiterates 3 STARS (hold)

Analyst: C.Lee, Efraim Levy, CFA

Fiscal 2005 (ending March) earnings per ADS of $6.72 (710 yen), vs. 686 yen, met our forecast. Our outlook for fiscal 2006 is mixed, given our expectation of increased competition, higher raw material prices, and yen appreciation. We see single-digit earnings per share growth at best, and believe risks are greater on the downside from the impact of higher interest rates and oil prices on auto sales. However, we believe Toyota's ADSs have discounted potential earnings risks with a p-e at the bottom of their historical range and a price/book ratio below its historical median. Our 12-month target price remains $84.

Morgan Stanley (MWD): Reiterates 3 STARS (hold)

Analyst: Robert Hansen, CFA

At a conference, Morgan Stanley says business has slowed in a more difficult operating environment, and that it expects to see more employee departures. We think recent executive departures will hurt revenues in the coming quarters as MWD works harder to refill its investment banking pipeline. Our fiscal 2005 (ending November) earnings per share estimate remains $4.50. But we are lowering our target price to $54 from $58, or 12 times our fiscal 2005 earnings per share estimate. We would not add to positions, as we think management control issues, shareholder dissent, and media attention will hurt employee morale and client relationships.

Great Atlantic & Pacific Tea (GAP): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Joseph Agnese

Great Atlantic & Pacific posted February-quarter operating loss of 14 cents per share, vs. a loss of 55 cents, significantly better than our 62-cent loss forecast. We are narrowing our fiscal 2006 (ending February) loss estimate from $2.86 to 70 cents, as we see aggressive re-merchandising and cost-cutting efforts aiding margins. Great Atlantic & Pacific announces a plan to divest its midwestern U.S. and Canadian operations, which we believe reaffirms the company's determination to aggressively pursue profitability within its core markets in the U.S., while solidifying its balance sheet. We are raising our target price by $9 to $23, based on enterprise value/EBITDA analysis.

Domino's Pizza (DPZ): Reiterate 4 STARS (buy)

Analyst: Dennis Milton

Domino's Pizza posts first-quarter EPS of 35 cents, vs. 28 cents a year ago (pro forma to reconcile capital structure with July 2004 IPO), one cent above our estimate. Results benefited from strong 11.2% domestic and 8.5% international same-store sales growth, and from debt reduction. We are increasing our 2005 EPS estimate by 2 cents to $1.30, our 2006 estimate by 5 cents to $1.45, and our 12-month target price by $1 to $22, to account for a stronger sales forecast. At 15 times our 2005 EPS estimate, the shares trade at a slight premium to its peers, which we believe is warranted due to Domino's strong sales momentum.

Delta Air Lines (DAL): Reiterates 2 STARS (sell)

Analyst: James Corridore

In its 10-Q filing, Delta outlines its cash levels and expected usage of cash for the remainder of 2005. The company had $1.8 billion in cash at Mar. 31, 2005, and has cash outlay requirements of $2.4 billion over the remaining three quarters of 2005, including $700 million for plane leases, $850 million for interest expense, $640 million in debt due, and $230 million in pension funding requirements. Absent a major asset sale or change in pension funding legislation, we believe the risk of bankruptcy in the next six months has increased. We are cutting our 12-month target price to $2 from $3, to reflect the additional risk.


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