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Stock Analyst Update

We're Sticking with a Top Casual-Dining Pick

Plus, Anheuser-Busch forges promising alliance, Intuit strikes a deal, and more.

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Applebee's (APPB) on Monday reported relatively weak November comparable sales. The grill and bar chain's same-restaurant sales fell 3.1% for the four weeks ending on Nov. 19, down from the 0.8% and 1.2% declines in the September and October periods, respectively. Morningstar analyst John Owens is a little disappointed with the weakening sales trend that's played out over the last few months, especially given the drop in gas prices and the chain's recent rollout of new menu items from celebrity chef Tyler Florence. However, Owens points out that Applebee's was lapping a menu price increase of approximately 1% and a higher-priced promotion during the last two weeks of the November 2005 period. The prior-year period also benefited from an additional week of advertising. Nevertheless, Owens thinks increased competition in casual dining may have weighed on Applebee's results as well, with rivals ratcheting up their use of coupons, discounts, and value promotions. Thus, while he's still optimistic about the company's long-term prospects and maintaining his fair value estimate for now, Owens will continue to keep a very close eye on its future performance.
 Full Analyst Report: Applebee's International

Anheuser-Busch to Import InBev Brands
Morningstar analyst Matthew Reilly thinks Anheuser-Busch (BUD) made a wise strategic move in reaching an agreement with InBev to import, distribute, and promote several InBev brands, primarily European imports, including Stella Artois, Beck's, Bass, Hoegaarden, and Leffe, effective Feb. 1, 2007. Although the economic terms of the deal have not been released, explaining why Reilly is leaving his fair value estimate in place, he thinks the agreement puts Anheuser-Busch in a better position to leverage its unparalleled distribution network in the U.S. And while the volume of the InBev brands was equivalent to only about 1.5% of Anheuser-Busch's total domestic output, Reilly points out that the inclusion of the brands should pacify the company's growth-starved distributor base and provide a source of incremental earnings. What's more, since Anheuser-Busch has opted to import and distribute only those brands that are unlikely to compete with its core offerings or products from Grupo Modelo (in which the company has a 50% interest), he thinks that the cannibalization risks are manageable at worst. 
 Full Analyst Report: Anheuser-Busch

Intuit Acquires Internet-Banking Provider Digital Insight
On Thursday, Intuit (INTU) announced that it was acquiring Digital Insight (DGIN), a provider of online banking applications for small banks and credit unions, for $1.35 billion. Morningstar analyst Irina Logovinsky believes two principal factors informed Intuit's decision to purchase Digital Insight. First, Intuit gains a new customer base, including 1,700 financial institutions and millions of online banking customers. Second, the company can better protect itself from competitive threats like online banking. During Intuit's analyst day held in September, management highlighted a survey indicating many consumers and small businesses prefer using Internet banking as a means of tracking their finances rather than the company's then-existing solutions. By acquiring Digital Insight, Intuit would be able to capitalize on these end-user preferences. Logovinsky's chief qualm with the deal is its steep price, which translates to more than five times Digital Insight's estimated 2006 annual sales and represents a hefty premium over Morningstar analyst Mark Weber's fair value estimate for that firm. Since Logovinsky thinks Intuit's generous offer offsets the potential benefits of the deal, she's maintaining her fair value estimate for Intuit. Meanwhile, Weber is raising his fair value estimate for Digital Insight to approximate Intuit's per-share offer price.
 Full Analyst Report: Digital Insight
 Full Analyst Report: Intuit

Are Mild Semiconductor Chip Cycles Here to Stay?
The latest data suggest that the semiconductor industry has had 17 quarters of continuous year-over-year growth since the trough of the previous cycle. Inventory corrections in the second half of 2004 were resolved in less than a year, with no single quarter exhibiting negative year-over-year growth. Morningstar analyst Larry Cao believes that the many underlying factors behind this trend are structural in nature. For instance, Cao believes chipmakers are now better at managing capacity expansion and inventory. What's more, the absence of killer applications has reduced the chipmakers' reliance on a single end market while increasing semiconductor content in consumer, automotive, medical equipment, and industrial applications has taken up the slack left by communications-equipment makers. Taken together, Cao believes these factors argue that mild chip cycles are here to stay for the foreseeable future and, thus, believes there will be fewer opportunities for deep-value commodity plays. For that reason, among others, balanced end market demand is a common theme underlying the investment thesis of Cao's top picks in the semiconductor sector.
 Full Analyst Report: Advanced Analogic Technologies
 Full Analyst Report: Applied Micro Circuits
 Full Analyst Report: Fairchild Semiconductor International
 Full Analyst Report: STMicroelectronics NV

Roundup of This Week's Feature Commentary
With several members of the incoming Democratic Congress having pledged to make health-care reform a top priority, it wasn't all that surprising to find the party's reclamation of power striking fear into the hearts of many health-care investors. To wit, the Amex pharmaceutical and biotechnology indexes were down roughly 4% and 2%, respectively, in the two days following the election. To be sure, with the Medicare Trust Fund poised to go bankrupt just as the baby boomer retirement wave crests, many Democrats are eager to reassert the government's control over the drug industry. For instance, Congress could legislate remedies that would force the bureaucracy to facilitate direct negotiations over drug prices or widen a pathway for approval of generic biologics. Yet, discouraging as the prospect of greater governmental control might seem to some investors, Morningstar analyst Karen Andersen thinks there's light at the end of the tunnel. In this piece, she runs down her list of health-care stocks that should remain well-shielded from any potential Democrat-initiated legislation. 
Democrat-Proof Health-Care Stocks 

Morningstar analyst Larry Cao knows he has a winner on his hands when he's enthused not only about a particular product, but also the stock of the company that makes it. With that in mind, Cao provides a rundown of three intriguing gadgets--and the reasonably priced chipmakers that have a hand in manufacturing them--just in time for the holiday shopping season. Whether they stuff stockings or stock portfolios, Cao thinks these ideas should bring plenty of good cheer for reasons explained more fully in the fa-la-la-la-la, la-la-la-wing piece.
Our Holiday Shopping List: Three Gadgets, Three Stocks

After reviewing the newly expanded "International Stalwarts" list in the October issue of Morningstar StockInvestor, readers may have asked themselves, "What gives with all of the Canadian banks?" Besides Royal Bank of Canada (RY), which was one of the original Stalwarts, the list now includes four additional wide-moat Canadian banks: Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CM), and Toronto-Dominion Bank (TD). In this piece, Morningstar analyst Ryan Batchelor provides a synopsis of the Canadian banking environment, describes factors to seek when canvassing potential investments in this field, explains why there's more than meets the eye when it comes to Canadian banks' profit margins, and, last but not least, posits his favorite Canadian bank-stock idea.
Canadian Banks Simply Produce Results

While Johnson & Johnson (JNJ) has encountered some challenges in its pharmaceutical business, we're confident it can emerge unscathed thanks to a solid research pipeline, diverse revenue base, and exceptional cash flow generation. In this video report, Morningstar director of stock analysis Pat Dorsey makes the case for why this perennial health-care stalwart should be able to weather the competition.
Video Report: Johnson & Johnson

Comverse Technology (CMVT) is the leader in the global market for voice-mail services and is looking to extend its leadership position to newer, high-growth applications for wireless carriers. However, the strength of the company's core business is clouded by investigations into its stock-option accounting and revenue-recognition policies. Morningstar director of stock analysis Pat Dorsey explains why we see potential upside to the stock in the following video report.
Video Report: Comverse Technology

This Week's 10 Most Popular Stock Analyses
 Linear Technology (LLTC)
 eBay (EBAY)
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 Emmis Communications A (EMMS)
 Checkfree (CKFR)
 Analog Devices (ADI)
 XL Capital (XL)
 Dell (DELL) 
 Medtronic (MDT)
 GMH Communities Trust (GCT)

Jeffrey Ptak has a position in the following securities mentioned above: JNJ. Find out about Morningstar’s editorial policies.