Markets & Finance

S&P Lifts Amgen to Strong Buy


Amgen (AMGN) : Upgrades to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Frank DiLorenzo, CFA

Third quarter pro forma earnings per share of 85 cents vs. 64 cents is 1 cent above our view. Combined Aranesp/Epogen sales of $1.439 billion were $42 million below our forecast; combined Neulasta/Neupogen sales of $882 million were $24 million better; Enbrel sales of $668 million were $4 million above. We see combined product sales rising about 21% in 2005 and 12% in 2006, with upside potential in 2006. We are encouraged by pipeline progress and think shares' valuation is attractive. We see 2005 earnings per share of $3.22; our 2006 estimate rises to $3.65 from $3.60. Assuming shares trade to a 2006 p-e-to-growth of 1.4 times, in line with peers, our target price rises $4 to $93.

McDonald's (MCD): Downgrades to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Dennis Milton

The downgrade is based on valuation. The company posed third quarter EPS of 56 cents before one-time items, vs. 54 cents one year earlier, 2 cents below our estimate. Results benefited from systemwide same-store sales growth of 4.1%, partly offset by higher operating costs. We are lowering our 2005 EPS estimate by 2 cents, to $1.94, but maintaining our 2006 estimate at $2.09. Our 12-month target price remains $38. At 17 times our 2005 EPS estimate, in line with peers, we believe the shares are attractively valued, given

strong sales momentum. However, with the shares up more than 10% from a July low, we think their valuation is no longer quite as compelling.

Ford Motor (F): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Efraim Levy, CFA

Update: The company's third quarter loss per share from continuing operations of 10 cents, vs. EPS of 25 cents one year earlier, is wider than our forecasted 6-cent loss. The company says it expects EPS for full 2005 at the low

end of its prior $1.00-$1.25 guidance. We are cutting our 2005 EPS estimate by 6 cents to $1.02, but are maintaining our 2006 forecast at 99 cents. While we are reducing our sales forecast for the rest of 2005, we expect income will benefit over time from planned plant closings as well as

from negotiations with the UAW over healthcare savings. We expect Ford's UAW pact to be similar to that of its larger domestic peer company.

Bank Of New York (BK) : Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Mark Hebeka, CFA

The Bank of NY posted third quarter earnings per share of 51 cents vs. 46 cents, 1 cent ahead of our estimate. Securities servicing fees, foreign exchange trading and net interest income showed strong growth, credit quality was solid and expenses remained in check. We are encouraged by the bank's business strategy and look for continued expense discipline and expansion through acquisitions and international alliances. We are raising our 2005 and 2006 earnings per share estimates to $2.07 and $2.30, respectively, from $2.06 and $2.25. We are raising our 12-month target price to $35 from $31, about 15 times our 2006 earnings per share estimate, in line with peers.

Coca-Cola Co. (KO): Reiterates 3 STARS (hold)

Analyst: Richard Joy

Coke's third quarter operating EPS of 57 cents, vs.

50 one year earlier, is 5 cents above our estimate. Worldwide unit case volume growth of 5% beat our 4% forecast. Lower taxes and favorable forex also contributed to results. While several markets showed strong growth, the company continues to struggle in several areas. We are encouraged by progress with Coke's turnaround plan, but expect challenging

conditions to remain for several key markets. Given the third quarter results, we are upping our 2005 estimate by 5 cents, to $2.18. We view Coke as worth holding, given its long-term potential. Our 12-month target price remains $46.

JetBlue Airways (JBLU): Reiterates 3 STARS (hold)

Analyst: James Corridore

JetBlue posted third quarter EPS of 2 cents, vs. 7 cents,

missing our 8-cent estimate, but beating Wall Street's 1-cent loss target. Revenues grew 40% on an only 28% increase in capacity. But fuel costs rose 58%; we see this increase as likely to accelerate in the fourth quarter. JetBlue

expects a negative operating margin in the fourth quarter of 5%-7%, which we think would lead to a per share loss of 25-35 cents, resulting in a loss for all of 2005, compared to prior expectations of profitability. We are cutting our respective 2005 and 2006 estimates to a loss of 10 cents and EPS of 25 cents, from EPS of 30 cents and 40 cents. Our target price falls to $20 from $23.

Dow Jones (DJ) : Ups to 2 STARS (sell) from 1 STAR (strong sell)

Analyst: James Peters, CFA

DJ posted third quarter earnings per share of 12 cents vs. 15 cents, beating our estimate by a penny. But the company provided a sharply lower fourth quarter outlook. While we view positively the recently announced initiatives to reduce operating expenses, we remain skeptical about near-term organic revenue growth opportunities. As a result, we are lowering our 2005 and 2006 earnings per share estimates to 91 cents and $1.30, respectively, from $1.01 and $1.37. We are also reducing our 12-month target price to $32 from $34. But with the shares close to our revised target price, we are upgrading shares.

XTO Energy (XTO) : Ups to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Charles LaPorta

Our upgrade is based on valuation. Third quarter earnings per share of 85 cents vs. 40 cents is below our estimate of 88 cents on higher operating costs than expected. Production was ahead of our estimate, and a 90% rise in active rigs over the past year has led XTO to raise 2005 guidance and give indications for healthy double-digit production growth in 2006. We are raising our 2005 and 2006 earnings per share estimates to $3.20 and $4.20, from $3.00 and $3.95. But we are lowering our target price by $2 to $50, reflecting revised benchmark valuations, though at 6 times our estimate 2006 earnings before interest, taxes, depreciation and amortization, this is still at a premium to peers.

Alaska Air (ALK) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Jim Corridore

Third quarter operating earnings per share of $2.15 vs. $1.58 beats our $2.10 estimate and the Street's $2.12. Results reflected strong passenger demand and higher fares, while costs were eased by fuel hedges. Alaska Air seems to have recovered from operational issues during the summer. The company expects to be modestly profitable in the seasonally slow fourth quarter, a positive surprise. We are raising our 2005 and 2006 earnings per share estimates to $3.15 and $3.88, from $1.02 and $2.75. Our 12-month target price remains $36, just 9.3 times our 2006 earnings per share estimate, below peers and Alaska Air's historical p-e range, and implying 20% upside potential.

Atwood Oceanics (ATW) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Stewart Glickman

Shares of Atwood Oceanics have fallen nearly 20% in October, the largest pullback of any of the nine offshore drillers in our coverage. We believe that supply-demand fundamentals are improving in several key regions for Atwood Oceanics, including the Asia-Pacific and Mediterranean, and expect fiscal year 2006 (ending September) earnings per share to more than triple the projected fiscal year 2005 levels. The company's shares are trading at 6.1 times our estimate of calendar 2006 earnings before interest taxes depreciation and amortization, below peers' 7.3 times, and at 9.1 times estimated calendar 2006 cash flow, also below peers. Our Net Asset Value model also shows Atwood Oceanics as undervalued. Blending, our 12-month target price remains $87.


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