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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Adam Johnson talks about what trading vehicles can help you earn more money per trade
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | MAY 9, 2005
 S&P STOCK PICKS & PANS S&P Downgrades Amazon to SellPlus analysts' opinions on McDonald's, AmeriTrade, and moreAmazon.com (AMZN ): Downgrades to 2 STARS (sell) from 3 STARS (hold) Analyst: Jason Asaeda While we continue to have a favorable view of Amazon.com's ever-expanding product offerings from a diverse mix of retailers, we expect still-strong sales growth to moderate this year, reflecting a maturing business and increasing competition. We also expect operating margins to narrow in 2005 because of the company's heavy discounting and free shipping promotions, ongoing investments in technology and content development, and option expensing. With the shares now trading above our 12-month target price of $33, our recommendation is sell. McDonald's Corp. (MCD ): Reiterates 5 STARS (strong buy) Analyst: Dennis Milton Systemwide sales grew 6.7% in April, due primarily to same-store sales growth of 2.8%, year to year, and a weaker U.S. dollar. Same-store sales rose 4.7% in the U.S. and 1.6% in the Asia-Pacific/Middle East/Africa region, but fell 0.7% in Europe. We view these results as strong, given difficult year-ago same-store sales comparisons (13.5% in the U.S., 10.5% overall). We are maintaining our 2005 earnings per share estimate of $1.96, and our 12-month target price of $38. At 15 times our 2005 earnings per share estimate, shares are at a slight discount to peers despite McDonald's strong sales momentum. AmeriTrade Holding (AMTD ): Downgrades to 3 STARS (hold) from 4 STARS (buy) Analyst: Robert Hansen, CFA Shares are up today following unconfirmed Wall Street Journal and other reports of potential buyout offer by E*Trade. We think AmeriTrade would make an attractive acquisition candidate and that significant synergies could be achieved. Also, we do not think management control issues will present a problem for an acquirer. We still see fiscal 2005 (ending September) earnings per share at 80 cents, but are raising our 12-month target price to $14 from $13, or nearly 18 times that estimate. Our downgrade reflects our view that a bidding war is not likely, given that we see only a limited number of potential suitors. Duke Energy (DUK ): Reiterates 5 STARS (strong buy) Analyst: Yogeesh Wagle After Duke Energy's conference call about its proposed acquisition of Cinergy, we still view Duke Energy shares favorably. We think the transaction would partly fulfill Duke's need to improve profitability of its North American power generation fleet. In particular, we think Duke's underutilized Midwest gas-fired plants would benefit from sales to Cinergy's electric utilities as they face growing load and emission control challenges. We think the combined entity would have an improved risk profile, with over 85% of pro forma operating income derived from regulated electric and gas operations. Cinergy Corp. (CIN ): Reiterates 4 STARS (buy) Analyst: Justin McCann Shares are up about 6% this morning after Cinergy agrees to merge with Duke Energy, pending approvals. In an all-stock transaction, holders would receive 1.56 shares of Duke Energy for each Cinergy share, owning about 24% of the new Duke Energy Corp. We are raising our target price for Cinergy by $5 to $48. Based on these terms, Cinergy shares would be worth about $45 at Duke Energy's current price, but could be worth $53 if Duke Energy were to reach S&P's $34 target price. Duke Energy plans to hike its dividend to $1.24 per share, implying a yield of 4.3%, just slightly below Cinergy's current yield of 4.5%. Research In Motion (RIMM ): Reiterates 5 STARS (strong buy) Analyst: Kenneth Leon, CPA RIMM reached 3 million BlackBerry subscribers using its wireless platform, and added 1 million in the last six months. The firm said it is on track to reach its 560,000 to 590,000 subscriber adds target in its May-quarter. We expect net sales to grow 50% to $2 billion in fiscal 2006 (ending February), with 2.5 million net adds, finishing fiscal 2006 with 5 million users. While the media has spotlighted the company's potential competitive threats from Microsoft and palmOne, we consider BlackBerry to be well placed with enterprise firms and carriers in developed and emerging markets. Our 12-month target price is $84. Credit Suisse Group (CSR ): Maintains 4 STARS (buy) Analyst: Derek Chambers Credit Suisse Group posted first-quarter net profits of $1.58 billion (1.91 billion swiss francs), vs. $1.54 billion (1.86 billion swiss francs), 22% ahead of our forecast. Results were aided by a revaluation of OTC derivatives and disposals of legacy private equity investments. Underlying revenues were flat, but expenses fell due to lower incentive and non-compensation costs. Due to nonrecurring first-quarter gains and forex effects, we are raising our 2005 earnings per ADS estimate by 14 cents to $4.28, but cutting 2006's by a penny to $4.45. We are lowering our target price by $1 to $47, 10.6 times our 2006 estimate, a slight premium to European banks but a discount to the closest competitor UBS. Home Depot (HD ): Reiterates 4 STARS (buy) Analyst: Marilyn Souers An unconfirmed report in London's Financial Mail said that Home Depot was in talks to acquire Britain's Kingfisher. According to the article, Home Depot was said to be enthusiastic about Kingfisher's operations in China and the U.K., but concerned about its French business. We view a potential acquisition of Kingfisher positively, as it would accelerate Home Depot's planned foray into China as well as establish a European presence. In separate news, Home Depot filed a $5 billion debt shelf registration, which the company says will be used for debt repayment, acquisitions and working capital needs. Kyocera Corp. (KYO ): Reiterates 3 STARS (hold) Analyst: Megan Graham-Hackett Kyocera announced that as part of restructuring efforts at its mobile phone business, it plans to outsource the manufacture and delivery of its products, and to sell certain manufacturing equipment and inventory to Flextronics International. We anticipated such a move, which the company says is aimed at improving its focus in its wireless business and profitability. KYO has already started to outsource service and repair operations. We still see fiscal 2006 (ending March) earnings per ADR of $4.00. Our target price remains $78, based on a p-e multiple of 19.5 times our fiscal 2006 estimate.  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. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. 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