S&P Stock Picks and Pans

S&P Positive on Yahoo-eBay Partnership

Analyst Scott Kessler says the link-up is "not good news" for Google. Plus: Analysts boost Global Payments, and more

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From Standard & Poor's Equity Research
eBay (EBAY) : Reiterates 5 STARS (strong buy)
Analyst: Scott Kessler

eBay shares are indicated higher in pre-market trading, as the company announces a broad partnership with Yahoo (YHOO) related to their U.S. businesses. PayPal will be the exclusive third-party provider for Yahoo's online wallet, and will be "deeply integrated" into the Yahoo website. In our view, Yahoo will enable eBay to better monetize its Web pages with online advertising. We believe this relationship and the pending offerings, which we expect to be rolled out beginning later this year, are a significant positive for eBay. Our 12-month target price remains $48.

Yahoo (YHOO) : Reiterates 4 STARS (buy)
Analyst: Scott Kessler

Yahoo is indicated higher following news of a broad partnership with eBay (EBAY) regarding their U.S. businesses. Yahoo will become the exclusive third-party provider of display advertising on eBay.com, and sponsored searches for complementary products on some eBay.com search results pages. Yahoo's search capabilities and results vis-a-vis eBay.com will also be enhanced, in our view. We think this relationship and the pending offerings, which we expect to be rolled out starting later this year, are a notable positive for Yahoo. Our 12-month target price stays at $40.

Google (GOOG) : Reiterates 3 STARS (hold)
Analyst: Scott Kessler

Google is indicated lower following news that Yahoo (YHOO) and eBay (EBAY) have established a broad partnership regarding their U.S. businesses. We think that Google's increasing size, offerings and power largely motivated the alliance. In our view, Google's share of eBay's online advertising budget will likely be negatively affected by this partnership, and eBay is a very important customer for Google. We also believe the partnership could enhance Yahoo's positioning in the online search market. Overall, we believe the Yahoo/eBay alliance is not good news for Google.

AVX (AVX) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Dylan Cathers

Shares of this passive electronic component maker have declined in recent weeks despite the company's strong March quarter earnings. We believe that operating margins will widen this year due to an increase in sales of value-added products. We expect product pricing to hold steady, and we think that inventories will remain low. However, we are lowering our 12-month target price by $2 to $19, reflecting changes in peer valuations.

CIT Group (CIT) : Ups to 5 STARS (strong buy) from 4 STARS (buy)
Analyst: Robert Hansen, CFA

We see considerable upside to share price, which has fallen about 1% so far in 2006, and has declined 9% from its 52-week high. We think CIT's business is generally improving, notably in the commercial and vendor finance businesses. Although we don't see further improvement in credit quality, we think growth in managed assets, notably in its healthcare and student lending businesses, will benefit earnings. We are maintaining our 2006 earnings per share (EPS) estimate of $4.70, and our target price of $65. Recently trading at 11 times our 2006 EPS estimate, we regard CIT shares as very attractive.

Global Payments (GPN) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Zaineb Bokhari

Our upgrade is based on valuation and our outlook for continued earnings expansion. Global Payments has followed what we consider to be a disciplined growth strategy through small acquisitions and margin gains. We are optimistic about the potential contribution in fiscal year 2007 (ending May) from Global Payments's pending venture with HSBC (HBC). Shares have fallen about 15% from recent highs, trading in line with peers on price-to-earnings. Given our view of Global Payments's execution, we believe a premium is warranted. Our earnings per share (EPS) estimates remain $1.54 for fiscal year 2006 (ending May) and $1.63 for fiscal year 2007; our 12-month target price stays $57.

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.

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