Bullish on Bear...

12/19/2003 12:00 am EST


Sam Stovall

Chief Investment Strategist, CFRA Research

"Our 2004 target for the S&P 500 is 1,190, a 10% advance in the coming year," says Standard & Poor's Sam Stovall. "Factors that contribute to this optimistic outlook include a strengthening economy, rising earnings, and the lack of attractive alternatives to equities." Meanwhile, S&P's The Outlook is bullish on Bear Stearns, its "stock of the week."

"We believe Bear Stearns (BSC NYSE) has weathered the financial-services industry slowdown remarkably well, largely due to its strong fixed-income franchise and prudent expense management. We think it has a strong competitive position within its industry and view the shares as attractive compared to peers and the S&P 500-stock index. Bear Stearns carries S&P's highest investment recommendation of 5 STARS, or buy. We expect Bear Stearns to use its strong free cash flow to pay dividends and repurchase common shares in fiscal 2004. We think its customer focus, prudent expense management, and stock repurchases illustrate its shareholder focus. In particular, we find management's equity interest in the company to be a positive.

" We think Bear Stearns has a strong competitive position within its industry and recommend buying the shares. We believe the stock trades at a significant discount to its peers due to concerns about a slowdown in the company's fixed-income business, which generated the majority of its revenue in fiscal 2003. However, with the shares recently trading at a p/e of nine times our fiscal 2003 EPS estimate, we think the valuation more than accounts for this risk. The shares have gained 24% year-to-date, which is slightly higher than the gain for the S&P 500-stock index, but lags behind its peer group, which has advanced about 40%. Our 12-month target price of $100 represents a multiple of 13 times our fiscal 2004 EPS estimate."

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