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S&P: Apple's Response to Options Issue "Positive"

Analyst Megan Graham-Hackett keeps her strong buy rating on the stock. Plus: Analysts comment on EMC's plans to buy RSA Security and more

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From Standard & Poor's Equity Research
Apple Computer (AAPL) : Maintains 5 STARS (strong buy)
Analyst: Megan Graham-Hackett

Apple announced that its own internal investigation revealed potential irregularities in stock option grants made between 1997 and 2001, including a grant to CEO Steve Jobs, which was later cancelled. We view Apple's actions to take the matter seriously, work with the SEC and hire an independent counsel to investigate further as positive and the appropriate response. We plan to update following further critical details, such as whether the practices in question included backdating and whether there was a consistent pattern of these practices under investigation.



RSA Security (RSAS) : Maintains 3 STARS (hold)
Analyst: Clyde Montevirgen


EMC (EMC) agrees to acquire RSA Security for $28.00 per share in cash and the assumption of outstanding options, subject to conditions and approvals. The deal is expected to close in the late third quarter or early fourth quarter of 2006. The acquisition price represents a 22% premium to the stock's June 29 closing price, valuing the deal at about $2.1 billion net of cash, or approximately 38 times our 2007 EPS estimate of 74 cents, above our acquisition expectation of 34 times. We are raising our 12-month target price to $28 from $25 to reflect the offer price.



EMC (EMC) : Reiterates 5 STARS (strong buy)
Analyst: Richard Stice, CFA


EMC announces an agreement to acquire RSA Security (RSAS) for $2.1 billion, which equates to $28 per share plus the assumption of stock options. The transaction is expected to close in the late third quarter or early fourth quarter, pending approvals. We view the proposed price, at about 5.5 times projected 2006 sales for RSA Security, as somewhat expensive. However, we are encouraged with the potential of this deal to improve EMC's business mix, broaden its product portfolio and the increasing level of customer emphasis on this particular niche (security) of the storage market. Our 12-month target price remains $18.



CA (CA) : Maintains 2 STARS (sell)
Analyst: Zaineb Bokhari


March quarter operating earnings per share (EPS) of 14 cents vs. 20 cents is in line with our estimate and CA's recently lowered guidance. Revenues are also in line, rising a modest 3% to $947 million. Given recent management turnover and our expectation that added disruptions from a recent salesforce realignment are likely, we see sales growth slowing to 3% in fiscal year 2007 (ending March) from fiscal year 2006's 6%, and our forecast is $3.9 billion, down from $3.98 billion. Our fiscal year 2007 operating EPS estimate falls 11 cents to 86 cents, a bit above CA's 83 cents guidance, reflecting our outlook for aggressive share repurchases. Our 12-month target price falls $1 to $19.



Research In Motion (RIMM) : Maintains 5 STARS (strong buy)
Analyst: Kenneth Leon, CPA


Research In Motion posts first quarter EPS of 68 cents vs. 56 cents, before special items, 4 cents above our estimate. Sales rose 35% to $613 million as the company realized 680,000 new Blackberry subscribers and strong software license fees, in our view. We see 30% sales growth in fiscal year 2007 (ending February), with growth picking up throughout the year. We are raising our fiscal year 2006 operating EPS estimate to $3.10 from $3.05 and fiscal year 2007's to $3.70 from $3.60. We recommend purchase of Research In Motion shares, which are priced below peers at 18 times our fiscal year 2007 EPS estimate, but growing faster.



Triumph Group (TGI) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Richard Tortoriello


Following the divestiture of its industrial gas turbine business, we see Triumph Group's margins and return on capital improving. We expect its aerospace systems to post strong fiscal year 2007 (ending March) results, based on our view of a healthy global aerospace market, and we look for a recovery in its aftermarket services. We view as positive the company's exposure to Boeing (BA), which accounted for 22% of Triumph Group's fiscal year 2006 sales and has experienced strong aerospace orders. Our 12-month target price remains $57.

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