Economic data lifts US stocks (page 3 of 3)

From a valuation point of view, CSFB attaches a sum-of-the-parts valuation of EUR25 for Philips. ASML (ASML NA; EUR 13.66) reported a smaller than expected 3Q net loss despite its order backlog surprising on the upside. As almost half of the new orders came in the last two weeks of the quarter, it is not long enough to base new trend predictions on it.

Trading on a PE04 of 47x, markets imply an accelerated recovery in sales and margins, which is not necessarily in line with the statement of the CEO as 'he sees signs of recovery (but) riddled with inconsistencies'.

Nokia (NOK1V FH; EUR 14.60) reported EPS in line with expectations and above the range provided as a guidance (EUR 0.18 on a reported basis). The 1ct EPS surprise was, however, already discounted in the price. Reasons for the disappointing reaction could be found in 1) subdued company comments on 4Q margins guidance.

3Q handset margins were at 22.4% and 4Q is historically a strong quarter for margins (4Q 02 24.7%). 2) flat to slightly higher guidance for 4Q phone sales when markets expected more 3) EPS guidance for the 4Q of between EUR 0.21-0.23 is also well off the figure of EUR 0.26 a year ago and 4) lower than estimated average selling price.

On the positive side, Nokia confirms the trend in strong growth in demand for handsets and states that its market share in the overall mobile phone market rose to 39% which is just short of the 40% target for this year. Our rather neutral stance on the company stems from the fact that we are yet to see a catalyst.

The insurance sector as a whole posted a strong performance this week lead by the German insurers. The German government may allow companies to deduct stock market losses from their tax bill, which would save the insurance industry up to EUR 10bn this year.

Munich Re (MUV2 GY; EUR 97) would be among the companies benefiting the most. In addition, Munich Re announced its long awaited capital increase on Friday. Munich Re will raise EUR 3.8bn in a 2 new for 7 existing shares-offer for at least EUR 75 per share, which is a discount of 23.5% to Thursday's closing.

The share offer will begin on the 28 October and end on the 10 November. Allianz (ALV GY; EUR 83), which holds 13.6% of Munich Re said that they will buy at least half of the new shares and Hypovereinsbank (HVM GY; EUR 16.04), which holds 13.2% supports the rights issue fully. The rights issue is the first step along the road to restore the group's AA rating.

Further steps would involve a reduction of stakes in Allianz, Commerzbank and Hypovereinsbank. The rights issue earlier on from Allianz, Swiss Life and Zurich Financial Services all helped stabilise the share price. Over the long term we believe the capital increase will act act as a support for Munich Re and in the short term will at least remove some uncertainty.

After SAP (SAP GY; EUR 123.56) pre-announced its key figures the week before, the company released detailed 3Q earnings ahead of expectations this week (net income increased 25% to EUR 252m, EPS came in at EUR 0.81 versus consensus forecast of EUR 0.62-0.65) and increased their guidance for the full year operating margin to around 26%.

The earnings outlook was also revised upwards towards the higher end of the range of EUR 3.45 - 3.60. The stock is currently trading at 30x 04 earnings, however, according to CSFB it is worth noting that SAP in the past has seen multiple expansion when it is perceived to be in an upgrade cycle.

If the stock were to return to its pre-bubble multiple of an average of 36x the stock could move to around EUR 145 per share. Accordingly, CSFB raised its target price for SAP on Friday from EUR 130 to EUR 140.

The stock currently sees some profit taking after a 13% increase following the companies pre-announcement. We believe reported market share gain should support the downside and reiterate our positive stance towards SAP with a target price of EUR138.

CSFB increased its target price for Adidas-Salomon (ADS GY; EUR 79.42) by 7% to EUR 108.06. We currently have a medium-term target of EUR 85. However, if the company manages to report decent 3Q figures (the 3Q is the most important quarter representing 57% of 2003 annual net income), we believe the company should gain momentum approaching 2004. Adidas-Salomon is not only positively geared towards a weakening US Dollar, but has a strong product pipeline, powerful strategic initiatives and trades on attractive valuations.

MAN AG (MAN GY; EUR 22.80) increased 12.7% in the last 5 days. After we reiterated our buy at EUR 18.25 and EUR 19.43 at the end of September and given the sharp increase, we decided to lock in a 15% profit since 13 August and remove the stock from our recommendation list. We continue to like the stock from a fundamental point of view and will look at adding it back at lower levels.