S&P Keeps Hold on Cisco Systems

Plus: opinions on Disney, Toll Brothers, Tiffany & Co., Yahoo! and Electronic Arts

From Standard & Poor's Equity Research

Cisco Systems (CSCO): Reiterates 3 STARS (hold)

Analyst: Ari Bensinger

Cisco posts April-quarter EPS of 31 cents, vs. 24 cents, below our 32 cents estimate, largely reflecting higher stock option expense. Sales increased 21%, above our forecast, and gross margin remained steady at 64%, despite a sales shift toward lower margin consumer products and the emerging markets. In our view, networking continues to evolve from a simple transport medium into an intelligent communication system, which plays directly into Cisco's strength of selling integrated networking products. Based largely on a peer-average p-e multiple, our 12-month target price is $29.

Walt Disney (DIS): Maintains 5 STARS (strong buy)

Analysts: Tuna, Amobi, CFA, James Peters, CFA

March-quarter EPS of 44 cents, vs. 37 cents, beats S&P and Street views by 5 cents and 6 cents, respectively, on solid double-digit EBIT growth at each of Disney's four segments. We see continued healthy underlying trends in park attendance, ABC ads/TV licensing and ESPN affiliate fees. We also note the highly anticipated Pirates 3 (May 26), and seamlessly integrated Ratatouille (June 29), despite likely difficult June-quarter comps for studio. We expect Disnesy to continue its aggressive stock buybacks (recently raised by 400 million shares). Our 12-month target price of $45 is based on our sum-of-the-parts valuation.

Toll Brothers (TOL): Reiterates 3 STARS (hold)

Analyst: Tom Smith, CFA

Preliminary April-quarter results include $1.17 billion homebuilding revenue, down 19% from a year ago but 7% above our estimate. Toll Brothers expects to miss its EPS guidance but to be profitable for the quarter despite inventory write-downs in the $90-130 million range. We foresee challenging housing market conditions and a possibility of writedowns continuing into fiscal year 2008 (October). We are reducing our EPS estimates to $1.10 from $1.60 for fiscal year 2007, and to $1.60 from $2.30 for fiscal year 2008. We are lowering our target price to $33 from $36, based on our revised price-to-book analysis.

Tiffany & Co. (TIF): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Esther Kwon, CFA

While we are cautious on key market Japan and on margin pressure from higher precious metals prices and mix changes toward high-ticket lower-margin items, we are positive on Tiffany's premium position with extensive interntional opportunities. We think margin pressure may be somewhat offset by a return to more in-house production, and leverage of recently added capacity. Moreover, we think Tiffany could divest non-core operations, which would be additive to EPS. We are raising our target price to $63 from $53 based on a p-e of 25 times our 2009 EPS estimate, about in line with historical average.

Yahoo! (YHOO): Reiterates 2 STARS (sell)

Analyst: Scott Kessler

Chairman and CEO Terry Semel will speak at Microsoft's (MSFT) Strategic Account Summit this afternoon. Given the speculation late last week about a possible Microsoft/Yahoo merger or alliance, we expect Semel's comments to be closely scrutinized. However, we remain skeptical about the prospects for a deal, and see an advertising alliance as more likely. We also note that over the last week, Yahoo has indicated it will, over the next few months, shutter Yahoo Auctions in North America and Yahoo Photos, showing sharper decision-making and prioritization, in our view.

Electronic Arts (ERTS): Downgrades to 2 STARS (sell) from 3 STARS (hold)

Analyst: Jim Yin

Electronic Arts posts March-quarter operating EPS of 1 cent, vs. 14 cents, exceeding our estimate of an 8 cents loss. Revenue declined 4.4% to $613 million, reflecting transition to the new generation of game consoles. We see higher research and development costs, lower gross margins, and a delay in the launch of Spore. We are reducing our fiscal year 2008 (March) non-GAAP revenue projection to $3.7 billion, including $500 million in deferred revenue, from $4.0 billion, and our operating EPS estimate to 82 cents from 95 cents. We are lowering our 12-month target price to $49 from $59, based on our reduced EPS projection.