S&P Ups 2007 Earnings Estimate for HP

Analyst Richard Stice says January quarter results reflect the overall consistency of HP's offerings. Plus: comments on Dell, JetBlue, and more

From Standard & Poor's Equity Research

Hewlett-Packard (HPQ): Reiterates 3 STARS (hold)

Analyst: Richard Stice

HP posts January quarter operating earnings per share (EPS) of 65 cents, vs. 48 cents a year ago, 4 cents above our estimate. Revenue rose 11%, boosted by 57% unit growth in notebooks. We are raising our fiscal year 2007 (Oct.) EPS estimate by 11 cents to $2.64. We believe January quarter results reflect the overall consistency of HP's offerings, as well as its success with expense controls. However, we believe these factors are fully reflected in the current share price. In addition, the shares trade at a modest premium to the S&P 500 on a price-to-earnings basis. As a result, we would not add to existing positions. Our 12-month target price is $45.

Dell Inc. (DELL): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Richard Stice, CFA

Although Dell continues to face a number of challenges regarding its business model and competitive environment, we believe these factors are fully reflected in the share price. Moreover, we view recent management changes, including Michael Dell's return as CEO, positively, and we think changes will spur efficiency improvements and innovation. Finally, we see the existing cash and investments balance, and ongoing free cash flow generation providing opportunities to supplement growth and product endeavors. We are keeping our 12-month target price of $28.

Medtronic (MDT): Cuts to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Robert Gold

January quarter EPS of 61 cents, vs. 52 cents, both after options, is 3 cents above our forecast, aided by lower-than-expected Researc & Development costs, tax rate and share count. Medtronic beat our estimates in vascular, diabetes and cardiac surgery, and ICD sales overseas also impressed. But we are concerned by the 10% drop in U.S. ICD sales, suggesting market share loss, and we think ICD competitive pricing pressures are rising. We are trimming our fiscal year 2007 (ending April) sales view to $12.2 billion from $12.4 billion, but keeping our $2.35 EPS estimate. We reduce our target price by $2 to $59.

JetBlue Airways (JBLU): Reiterates 3 STARS (hold)

Analysts: Jim Corridore and Stewart Scharf

In the wake of last week's storm-related delays, JetBlue Airways now sees first quarter operating loss, and full-year operating margins of 8% to 10%, down from its earlier forecast of 10% to 12%. However, we expect results to improve sequentially during the rest of 2007. Its CEO yesterday unveiled a new customer reimbursement plan and other actions to improve flight crew rescheduling procedure. Based on more costs than we had earlier expected, we now see a $0.15 loss for the first quarter, and further reduce our 2007 EPS estimate by $0.09 to $0.43. We maintain our 12-month target price at $15.

Live Nation (LYV) : Starts at 3 STARS (hold)

Analyst: Tuna Amobi

We view the live entertainment market leader as well positioned in a consolidated industry, despite exposure to rising costs for music artists. After the Dec. 2005 spinoff from Clear Channel Communications, Live Nation is pursuing a more aggressive acquisition strategy, while also moving to rationalize its venues portfolio and monetize its Web properties. We expect better terms on key legacy contracts expiring 2008, and project $0.11 operating loss per share in 2006 improving to EPS of $0.81 in 2007 and $1.19 in 2008. Our 12-month target price is $28 per share.

Orient-Express Hotels (OEH): Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: James Peters

Orient-Express Hotels announces the resignation of President and CEO Simon Sherwood, expected to remain with Orient-Express Hotels until August in order to facilitate a management transition. While we generally find CEO departures worrisome, the lengthy resignation notice period suggests to us that there are no contentious issues surrounding the departure. We continue to have a strong fundamental growth outlook for Orient-Express Hotels, and on rising peer multiples, we are raising our 12-month target price by $4, to $54. But following recent price appreciation, we are downgrading our opinion on the shares based on valuation.

Safeco (SAF): Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Cathy Seifert

Our opinion is tempered by a sharp recent rise in the share price, and by what we view as a heightened competitive environment for many lines of insurance coverage. We applaud steps Safeco has taken to cut costs and make more effective use of its capital. Our 12-month target price of $74 assumes these accomplishments are rewarded with an expansion in the forward price/book multiple on Safeco shares, to 1.85 times our projection of 2007 tangible book, less of a discount to most of the company's peers.