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Street Talk: Cheap Dollars
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December 19, 2000: 9:23 a.m. ET
Goldman cuts Dollar Tree, Family Dollar; reaffirms Time Warner, AOL
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NEW YORK (CNNfn) - The economy might really be slowing down after all -- people don't even want to spend a dollar. Analysts cut two discount retailers Tuesday after one that sells goods for a dollar or less warned of disappointing earnings on slow sales.
Goldman Sachs cut its earnings estimates for Dollar Tree Stores (DLTR: Research, Estimates), a discount variety store chain selling goods for a dollar or less, after it warned Monday that fourth-quarter earnings will be well below Wall Street expectations due to disappointing holiday sales.
Goldman Sachs cut its fourth-quarter earnings-per-share estimate for Dollar Tree to 60 cents from 70 cents and its 2001 estimate to $1.33 a share from $1.55.
Goldman also cut its 12- to 18-month price target on Dollar Tree shares to $40 from $60. Dollar Tree shares closed Monday at $36.38.
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Goldman downgraded another discount store, Family Dollar (FDO: Research, Estimates), cutting it to "market perform" from its "recommended" list, citing weaker retail sales.
However, Goldman said it kept its earnings estimates for the company at 24 cents a share for the fiscal first quarter and $1.19 for 2001.
"Solid performance reflects strong management of growth, and we still see upside to $30 over 12 to 18 months," Goldman said in a research note. "We still favor value retail as one of few real retail growth sectors."
Goldman said Family Dollar's fundamental and share-price performance this year have well outpaced that of its closest competitor, Dollar General (DG: Research, Estimates).
Family Dollar stores closed Monday at $22.81.
Time Warner, AOL
Goldman Sachs was kinder to CNNfn's parent company Time Warner (TWX: Research, Estimates) and its merger partner America Online (AOL: Research, Estimates), saying both stocks are still buys.
Both stocks fell Monday after Time Warner warned its earnings growth for this year would fall short of expectations, citing a soft advertising market, weaker music sales and disappointing box office results for the Adam Sandler film "Little Nicky."
"We continue to recommend the purchase of AOL and Time Warner and would take advantage of what we believe was an overreaction to a shortfall in (Time Warner's fourth-quarter earnings)," Goldman said in a research report.
Time Warner shares dropped $9.47 Monday to $63.25, while AOL shares fell $6.72 to $42.24.
Aetna
Lehman Brothers cut its fourth-quarter earnings estimate for Aetna (AET: Research, Estimates), but raised its 12-month price target on its shares, after the No. 1 U.S. health insurer said Monday it plans to cut 5,000 jobs --13 percent of its work force -- and take about $565 million in charges in the fourth quarter.
Lehman cut its fourth-quarter estimate to 30 cents a share from 33 cents, while raising its price target to $40 a share from $35. Aetna shares closed Monday at $68.13.
Caterpillar
Bear Stearns raised its investment rating on Caterpillar (CAT: Research, Estimates) to "buy" from "neutral," a day after Goldman Sachs downgraded the construction machinery maker to "market perform" from "market outperform."
In a research note, Bear Stearns raised its 2001 earnings-per-share estimates to $3.45 from $3.25 and set an interim share-price target of $55. Caterpillar stock closed Monday at $42.31.
"We believe peak earnings could readily exceed $5 a share," Bear Stearns said. "Despite the stock's recent appreciation, we believe that significant further upside can ensue, as earnings begin to climb back to more normalized levels next year.
Pepsi Bottling
Salomon Smith Barney analyst Jennifer Solomon raised her price target
on shares of Pepsi Bottling Group (PBG: Research, Estimates), the largest bottler of PepsiCo (PEP: Research, Estimates) drinks, to $50 from $42.
"Despite the more than doubling of Pepsi Bottling's stock price in 2000, we think it remains a safe-haven name with good earnings visibility," Salomon said in a research note.
Pepsi Bottling shares closed Monday at $41.56.
Gillette
Lehman Brothers cut its 2001 earnings estimate for Gillette (G: Research, Estimates) to $1.25 a share from $1.29 after the consumer products bellwether announced a major restructuring Monday and warned its first-quarter 2001 earnings will miss expectations.
Credit Suisse First Boston cut its 2000 earnings estimate for Gillette to $1.17 a share from $1.18 and its 2001 estimate to $1.25 from $1.32.
Prudential Securities cut its 2001 estimate for Gillette to $1.25 from $1.33.
Priority Healthcare
Lehman Brothers raised its price target Tuesday for Priority Healthcare (PHCC: Research, Estimates) after the healthcare products distributor unveiled plans to purchase Freedom Drug.
 The purchase of specialty pharmacy Freedom Drug, announced Monday, is expected to close in 2001 and boost earnings immediately. Lehman analyst Larry Marsh raised his price target to $44 from $37.50 in response, he said.
Marsh forecast that the deal could boost Priority Healthcare earnings per share by 3 cents to 6 cents a year, with most gains occurring in 2001.
"We see this addition to be a very nice broadening of (Priority)," Marsh wrote in a report.
Priority Healthcare shares closed Monday at $33.50.
-- from staff and wire reports 
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