S&P Cuts Symantec Shares to Sell

Plus: Analyst opinions on Motorola, Illumina, and more

From Standard & Poor's Equity Research

Symantec (SYMC)

Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Jim Yin

Our downgrade reflects our view of Symantec's decelerating growth rates and its valuation. Growth rates, year over year, in the September quarter were 5% and 12%, respectively, for enterprise and consumer products segments. We believe the weakness is related to the flat growth in the security and data management business segment, and think this trend will continue in 2007. We see increased competition in consumer products with release of Microsoft Vista. The stock has appreciated nearly 10% after reporting September quarter results below analysts' expectations. Our target price remains $19.

Equity Residential (EQR)

Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Royal Shepard

We attribute recent weakness in Equity Residential shares in part to concerns about expected slowdown in demand for condominium conversions. However, we project the impact on 2007 funds from operations will be minor, about $0.05 per share. Improving rental rates at established apartment properties should, in our view, maintain recent earnings and funds from operations growth. Also, Equity Residential's ongoing disposition program should improve portfolio quality over the coming year. Our target price remains $50, 20 times our 2007 FFO estimate, and we would hold Equity Residential based on total return. Its dividend is yielding 3.5%.

Weight Watchers (WTW)

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

Analyst: Loran Braverman, CFA

Our downgrade reflects the recent strong price appreciation of Weight Watchers shares, which have risen about 25% since their low close on August 11. We are maintaining our 12-month target price of $51, based on our view that Weight Watchers can trade at a price-to-earnings of 21.4 times our 2007 earnings per share (EPS) estimate of $2.38, modestly below its six-year historical average. Our 2006 EPS estimate remains $2.06, which incorporates a 6% sales forecast, reflecting moderate attendance growth in North America, a modest decline in international growth, and price increases.

Bausch & Lomb (BOL)

Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Robert Gold

Bausch & Lomb said last week it would be unable to file its 9/30/06 10-Q on time due to ongoing financial audits. It now sees 2006 sales at the low end of earlier guidance, which is in line with our $2.3 billion projection and shows little sign that brand rebuilding efforts have begun to reinvigorate lens solution sales growth. Despite a lack of visibility on Bausch & Lomb's effective tax rate, our 2006 EPS estimate stays at $0.90 after $0.28 projected option cost. We still see 2007 sales of $2.5 billion and earnings per share (EPS) of $2.50. We think 2006 earnings before interest and taxes (EBIT) margin will fall to the mid-single-digits, and our target price remains $47.

Illumina (ILMN)

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

Analyst: Jeffrey Loo, CFA

Illumina agreed to acquire Solexa in a stock deal worth $600 million, subject to required approvals. The transaction is expected to close in the first quarter of 2007. We think this proposed deal will significantly expand Illumina's franchise and market potential with genotyping, gene expression and sequencing but Illumina will pay a rich premium for Solexa. We think sequencing is a $1 billion market opportunity but we see the deal being dilutive to 2007 EPS by 20% to 35% and only modestly accretive in 2008. Our target price falls by $10 to $44.

Motorola (MOT)

Maintains 3 STARS (hold)

Analyst: Kenneth Leon, CPA

According to an unconfirmed Reuters source, Samsung Electronics said its fourth quarter handset unit shipments and sales growth should be strong, but operating margins will be lower than the 11% posted in the third quarter. In our view, margin pressure is an industry challenge, with the higher demand for lower priced handsets in emerging markets. We think Motorola and Nokia face the same market pressures as Samsung, but these vendors should be able to maintain margins with greater scale economies. Despite our concerns about growth for Motorola's other units, we would hold for strong execution in handsets.