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Get Four
|  | JANUARY 18, 2006
 S&P STOCK PICKS & PANS S&P: Still Buy Bank of N.Y., Hold SchwabPlus: A downgrade of Packeteer, an upgrade of Trustmark, new coverage of Pacific Energy Partners, and moreBank of New York (BK ): Reiterates 4 STARS (buy) Analyst: M. Hebeka, CFA The company posted fourth quarter EPS of 53 cents, vs. 45 cents one year earlier, a penny below our estimate. Securities servicing fees and foreign exchange showed strong growth, credit quality was solid and expenses remained in check. We are encouraged by the company's ability to achieve positive operating leverage and execute its business strategy. In 2006, we look for continued healthy fee revenue growth, expense discipline and expansion through acquisitions and international alliances. We are keeping our 2006 EPS estimate at $2.30. Our 12-month target price stays $35, about 15X our '06 estimate, in line with peers. Charles Schwab (SCHW ): Reiterates 3 STARS (hold) Analyst: R. Hansen, CFA Schwab posted fourth quarter EPS of 14 cents, vs. 4 cents, below our 15-cent estimate. We think higher trading volumes, lower operating costs, and a reduced commission rate schedule have improved the company's competitive position. We see consistent net client inflows, higher asset management fees, and increased banking profits in 2006. However, we are lowering our 2006 EPS estimate to 65 cents from 70 cents to include projected stock option expense. Our 12-month target price stays $16, or nearly 25 times that estimate. We would hold Schwab, based on our view that the current premium on its shares is appropriate. Packeteer (PKTR ) : Cuts to 2 STARS (sell) from 3 STARS (hold) Analyst: Ari Bensinger We believe the recent entrance of several large networking vendors into the WAN optimization market has disrupted the competitive environment by delaying customer buying decisions. We are also concerned that channel inventory issues are decreasing sales visibility. We see fourth quarter earnings per share of 9 cents on revenue of $27 million, both below the Street mean. To account for our view of increased operational challenges, we are lowering our 12-month target price by $1 to $8, or 3 times our 2006 sales per share estimate, a slight discount to other next generation equipment suppliers. Trustmark (TRMK ) : Ups to 4 STARS (buy) from 3 STARS (hold) Analyst: Jason Seo, CFA Trustmark posts fourth quarter earnings per share (EPS) of 50 cents vs. 50 cents, in line with our estimate. Higher-than-expected net interest income was offset by lower non-interest income. We are encouraged by the bank's improving net interest margin due to robust growth in low-cost deposits and reductions in its securities portfolio and higher-cost borrowings, and we see more earnings momentum due to the company's expansion plans into higher-growth markets. On higher margins, we are increasing our 2006 EPS estimate by 8 cents to $2.06. Our 12-month target price rises by $1 to $31, 15 times our 2006 estimate, in line with peers. Pacific Energy Partners (PPX ): Starts at 3 STARS (hold) Analyst: Royal Shepard Pacific Energy Partners recently expanded its portfolio of midstream energy assets with the purchase of terminals from Valero L.P. Future plans include a new deep-water marine terminal in the Port of Los Angeles. Core West Coast pipelines, however, serve mature oil producing areas. We believe long-term growth hinges on additional acquisitions. We see 2006 earnings per unit of $1.56, up 16% from 2005. Our stock target price is $31. Hold for total return. Linear Technology (LLTC ) : Ups to 4 STARS (buy) from 3 STARS (hold) Analyst: Thomas Smith, CFA Linear Technology reports December quarter earnings per share (EPS) of 33 cents vs. 33 cents, in line with our estimate that includes stock option expense. Revenues rose 6% from a year ago and 4% from the September quarter. Net margin widened slightly to 38.9%. The company guides for the March quarter revenue growth of 5% to 6%, above our forecast of 4%, and hikes its quarterly cash dividend by 50%. We see this high-end analog chipmaker making steady progress, and we are increasing our fiscal year 2006 (ending June) and fiscal year 2007 earnings per share (EPS) estimates to $1.36 and $1.60, from $1.34 and $1.55. We are raising our target price by $2 to $45. Teradyne (TER ) : Ups to 4 STARS (buy) from 3 STARS (hold) Analyst: Colin McArdle Teradyne reports fourth quarter GAAP earnings per share (EPS) of 44 cents, compared with our 42 cents EPS estimate. Operating EPS is 24 cents, excluding previously announced tax benefits and other one-time charges. Our upgrade reflects our view of strong demand across most geographies combined with lower-than-expected operating expenses, as we saw in the fourth quarter. We are raising our first quarter EPS estimate to 20 cents from 16 cents, including 3 cents of stock option expense, and our full 2006 estimate to 92 cents from 77 cents. We are raising our 12-month target price to $21 from $15. Davita (DVA ): Ups to 4 STARS (buy) from 3 STARS (hold) Analyst: Cameron Lavey We expect demand for dialysis services to remain strong, driven by the rising senior population in the U.S. In addition, we expect slight increase in Medicare reimbursement in 2006 and 2007. While we see some risk in the shares because of the complexity of integrating the Gambro acquisition, we see potential for operational synergies. We estimate 2005 earnings per share (EPS) of $2.13, and expect $2.53 in 2006 after 8 cents of option expense. We are raising our 12-month target price by $9 to $63.  All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
BW MALL
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