Positive Bias for Raytheon Shares

Raytheon Company (RTN) offers investors strong order bookings and order backlog, an improving balance sheet, growing cash flow, above industry average return on equity (ROE), and one of the highest dividend yields in the industry. Solid performance in 2007 is expected to continue through 2008-09.

Going forward, however, concerns about the long-term growth of defense spending in the face of continuing budget deficits and risks related to the company's program execution remain significant risks. Accordingly, we note a bias to outperformance and maintain our Buy recommendation on RTN common stock with a six-month target price of $64.25.

Revenue and earnings growth continue to be driven by strong demand for missile and missile defense systems as well as network-centric mission solutions, including sensor and communication systems. The global aviation sector is also showing signs of a recovery. We expect stronger operating profit based on the realization of better pricing. Furthermore, the company continues to benefit from strong defense spending. In view of the company's improved financial profile and reduced litigation risk, backed by strong earnings reported in the recent quarter, Moody's Investors Service raised its debt ratings on RTN.

We continue to view Raytheon as one of the best-positioned among the large-cap defense primes due to its non-platform-centric focus, strong cash flow generation, and focus on shareholder value. Additionally, rising international sales from the Patriot Program and extension of the e-Borders contract will add to the growth.

Furthermore, the recent acquisition of SI Government Solutions, a leading provider of proprietary software security solutions, strengthens the company s end-to-end information assurance and information operations capability while catering to its government customers.

AstraZeneca Should Clear Hurdles

AstraZeneca Plc's (AZN) key drugs such as Crestor (cholesterol), Seroquel (schizophrenia) and Symbicort (asthma) will continue to be the driving force of growth until the company can monetize its pipeline. Generic competition will eat into revenue growth, but productivity initiatives should pay off in the form of healthier margins and mid-single digit earnings growth for the next few years.

The company is facing a number of challenges as it enters 2008, most notably from generic competition to Toprol (hypertension) and Nexium (ulcer) and the possible launch of generic Seroquel. Management is determined to grow earnings largely through expanding its top-line and only secondarily through cost-cutting, share buybacks and productivity initiatives. This is in sharp contrast to many large-cap pharma peers, which are wringing out earnings through very significant cost-cutting strategies.

We believe the management's productivity and synergy initiatives should benefit operating margins and earnings in the next few years, which should help grow EPS faster than revenues. Its goal is to file up to three new license applications per year and bring two new drugs to market per year through 2010.