S&P Upgrades JPMorgan Chase to Buy

Analyst Frank Braden notes the firm's pending first quarter results. Plus: comments on D.R. Horton, LG.Philips LCD, and more

From Standard & Poor's Equity Research

JPMorgan Chase (JPM)

Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Frank Braden

Ahead of first quarter results scheduled for release on April 18, we are raising our 2007 earnings per share (EPS) estimate by $0.15, to $4.15. We expect that strong growth in investment banking and asset management fees plus solid performance in treasury and securities services will more than offset pressure on JPMorgan's net interest margin and weakness in credit quality. We further expect 2007 results to be buoyed by recent expense management initiatives. We are raising our 12-month target price to $55 from $52, 13.2 times our 2007 EPS estimate, a slight premium to its historical average.

D.R. Horton (DHI)

Cuts to 2 STARS (sell) from 4 STARS (buy)

Analyst: Thomas Smith, CFA

D.R. Horton says March quarter net sales orders fell 37% in units and 40% in dollar value, which misses our revenue estimate by about 5%. This large homebuilder describes the spring selling season as lacking its usual strength, which confirms peer reports. With order cancellation rates not improving, we are taking a dimmer view of the near-term outlook for the shares. We are lowering our EPS estimates to $1.55 from $1.90 for fiscal year 2007 (ending Sep.), and to $1.80 from $2.50 for fiscal year 2008. We are also cutting our 12-month target price to $18 from $34.

LG.Philips LCD (LPL)

Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Ken Leon, CPA

First quarter loss per share of $1.03 vs. earnings of $0.38 is narrower than our $1.51 loss view. Sales in Korean won rose 10.2%, with higher shipments and stable pricing for flat panel TVs, notebooks and PC monitors. Strong efforts to cut costs led to higher margins. LG.Philips targets an operating breakeven in the second quarter. We see 21% sales growth in 2007 with the flat panel industry maintaining stable pricing. We are raising our 2007 earnings per ADS estimate to $0.50 from a $0.76 loss. Applying an enterprise value 7.9 times our 2007 EBITDA estimate, near peers, we raise our 12-month target price by $6, to $19.

Harris Interactive (HPOL)

Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: James Peters

Harris Interactive lowers second half fiscal year 2007 (ending June) revenue guidance, citing adverse results in its health care group. In November, the company guided for fiscal year 2007 organic sales of $230 to $240 million, but now sees $216 million; in February it projected $117 to $122 million for the second half compared with an estimate now of about $112 million. We are concerned about Harris Interactive's lack of visibility and do not see a near-term catalyst for its health care research group. We also see lower revenues reducing fixed cost leverage. Thus, we are lowering our fiscal year 2007 EPS estimate by $0.02 to $0.19, and our 12-month target price by $0.50, to $5.00.

FPL Group (FPL)

Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Justin McCann

With the shares up nearly 14% year-to-date, we expect a reduced rate of total return over the next 12 months. We see FPL Group reporting first quarter earnings on April 30, and we are keeping our EPS estimate of $0.62. We still see 2007 EPS of $3.45, but are raising our 2008 estimate by $0.05 to $3.80. We are also lifting our 12-month target price by $5 to $66, a premium-to-peer price-to-equity of 17.4 times our 2008 estimate. While the rise in the shares has reduced the dividend yield to a below-peer 2.4%, we believe the premium is justified by, in our view, a well above-average growth rate for the next few years.

Questar (STR)

Cuts to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Chris Muir

Questar shares have risen about 14% since the company reported 2006 results on February 14, while the S&P 500 has dropped by 0.7% during the same period. We are raising our 2007 and 2008 EPS estimates by $0.09 to $5.35 and by $0.17 to $5.73, since we look for firmer natural gas prices to help boost revenues, and see evidence of successful exploration & production operations during the first quarter. As a result of the increased estimates, we are raising our 12-month target price by $9 to $104. We continue to like Questar's use of hedging to reduce earnings fluctuations. Questar's dividend is yielding 1.0%.