S&P: XM-Sirius Deal Wouldn't Fly

Plus: Analyst opinions on Dun & Bradstreet, Aluminum Corp. of China, and more

From Standard & Poor's Equity Research

XM Satellite Radio (XMSR)

Maintains 2 STARS (sell)

Analyst: Tuna Amobi, CPA, CFA

After a comment at an investor conference, we think XM is up today on the inference that 2007 merger talks with Sirius (SIRI; 3 STARS, hold) are possible. Despite potential strong synergies, we do not think, given the FCC's recent comments, that the potential combination of satellite radio rivals would pass regulatory muster. Assuming satellite radio will keep its duopoly-like structure near term, we see any takeover premium as unwarranted. It is also not clear to us by how much a 2007 ramp of auto OEM units could help offset further fundamental contractions in the retail channel.

Dun & Bradstreet (DNB)

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

Analyst: J. Peters, CFA

D&B guides for 2007 revenue growth of 6%-8%, an EPS increase of 13%-16% before restructuring charges, and free cash flow of $310-$325 million. The forecasts are in line with our projections of growth of 7% in sales and 16% in EPS, and above our $300 million free cash flow estimate. D&B expects to take $30-$35 million in charges for creating operational efficiencies, including the elimination of 400 positions. Based on our increasing confidence in DNB's ability to continually drive strong free cash flow growth, we are raising our target price by $13 to $95 on revised discounted cash-flow analysis. /

Aluminum Corp. of China (ACH)

Upgrades American Depositary Receipts to 4 STARS (buy) from 2 STARS (sell)

Analysts: P.L. Chan, L. Larkin

Our opinion change is based on valuation. We are raising our estimate for 2006 earnings per American Depositary Share to $3.24 from $3.22 and 2007's to $2.46 from $2.25, based on our expectation for a firmer aluminum price. In our view, the company will command a higher p-e on improved sentiment stemming from its planned 'A' share offering and continued strength in aluminum prices. On that basis, we are raised our 12-month target price to $24 from $19. Our target valuation multiple is at the mid-point of the stock's historical range and in line with international peers.

Northrop Grumman (NOC)

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

Analyst: Richard Tortoriello

We are upgrading Northrop Grumman to reflect our view of continuing strong order inflow and strong cash flows, our expectation of rising profit margins, and our outlook on the need for continued strong U.S. defense budgets. We expect Northrop Grumman to earn $4.84 per share in 2007, with free cash flow per share near $5.50. We see substantial cash generation being used for share repurchases, dividend increases, pension obligation and debt reductions, as well as selected acquisitions. We are raising our 12-month target price by $8 to $80, based on our revised discounted free cash flow analysis.

East West Bancorp (EWBC)

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

Analyst: Erik Oja

We have a favorable view of East West Bancorp's focus on commercial and residential lending to the Chinese-American community in Southern California. We think asset quality is strong due to the bank's conservative loan-to-value underwriting standards, with only 0.12% of loans nonperforming at the end of the third quarter. We are reiterating our EPS estimates of $2.31 for 2006 and $2.58 for 2007. We are raising our target price by $1 to $40. This implies a P/E of 15.5 times our 2007 EPS estimate, in line with other Chinese-American banking peers and other banks of similar size and growth rates.

Gannett Company (GCI)

Maintains 3 STARS (hold)

Analyst: J.Peters, CFA

In an unconfirmed report, the Wall Street Journal states that Gannet, Tribune and McClatchy are planning to pool some of their online advertising inventory in effort to reach national advertisers. Given that the trio already co-owns online recruiting site Careerbuilder, we see further collaboration as likely. While we believe 2007 will be a fundamentally challenging year for Gannett, we see initiatives to improve its competitiveness setting the stage for a rebound in 2008. Based on revised relative value analysis, we are raising our target price by $8 to $66.