S&P REITERATES HOLD RECOMMENDATION ON SHARES OF TARGET
“We are lowering our FY 14 (Jan.) operating EPS estimate by $0.03 to $3.59 to reflect the near-term impact of the recent credit card data breach, in particular the chain-wide 10% discount the weekend before Christmas and call center/investigative expenses. However, due to higher market and peer P/E multiples, we increase our target price by $1, to $67. We think the discount was slightly dilutive to sales, and have reduced our Jan-Q comp estimate to flat, from a 0.5% increase. We have also trimmed our gross margin expectation slightly to reflect the cost of the discounts.”
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Morgan Stanley Comments on DreamWorks
(DWA, $35.79, up $0.56 in late trading)
In a research review of DreamWorks Animation SKG Inc. today, Morgan Stanley reiterated its “underweight” rating on the stock, due to the high PE vs. other media stocks.
DreamWorks is well-positioned for new releases in the coming years, and is expanding consumer product sales to provide a more steady income stream in the future. 2014 film releases include Mr. Peabody & Sherman, How to Train Your Dragon 2, and Home.
After losing money in 2012, DreamWorks’ earnings are expected to come in solidly profitable in 2013, then rise 11% and 70% in 2014 & ’15. The 2014 PE is 40.
The 2014 earnings outlook is not strong enough to warrant a buy rating from Goodfellow LLC.
The stock is up 88.6% since we recommended it to Ransom Notes Radio listeners on March 22. Thereafter, we cautioned investors several times that earnings growth would be slowing, and the PE was climbing.
At this point, I suggest that shareholders use stop-loss orders at $32.50 or $30.50, to protect capital gains.
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S&P Comments on Merck’s R&D Reorganization Plans
(MRK, $49.84, up $0.04 midday)
S&P commented on Merck & Co. today, “MRK plans a radical overhaul of its R&D organization, creating new hubs in areas of medical education and R&D such as Boston, San Francisco, London and Shanghai, according to an unconfirmed report in the Wall Street Journal. The report added that MRK is also planning to sell of dozens of its existing R&D compounds. We believe these plans, which put greater emphasis on outside R&D, could spark a rejuvenation in MRK’s present internally-based R&D engines, which recently suffered a string of setbacks.”
Merck shares are not recommended at Goodfellow LLC due to lack of earnings growth. Earnings per share (EPS) fell in 2013, are expected to be flat in 2014, with slow growth in 2015.
Merck shares reached a high of $61.18 in January 2008. and will probably break past the Dec. 2 annual high of $50.42 in the near-term. If I owned the stock, I’d hold it for further near-term gains, and put in a stop-loss at $47.25, with plans to raise the stop-loss immediately after the stock breaks out. Traders could plan to buy shares on the breakout. Buy & hold investors should focus on stocks with strong projected earnings growth. Subscribe now for excellent stock suggestions.
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