OCTOBER 5, 2006



S&P Stock Picks and Pans


S&P Keeps Buy on Apple

Plus: Sony gets upgraded to hold, Sirius Satellite remains a strong buy, and Qwest Communications stays at sell


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From Standard & Poor's Equity Research
Apple Computer (AAPL): Reiterates 4 STARS (buy)
Analyst: Richard Stice, CFA
Apple updates on its stock option grant review and says a number of those made from 1997-2002 were likely back-dated. Moreover, it says that in a few cases, CEO Steve Jobs was aware of the advantageous dates, though he did not receive any of the grants. Furthermore, current board member and former CFO, Fred Anderson, has resigned. While the news regarding Jobs is somewhat disconcerting, we do not anticipate this issue having a material impact on Apple's fundamental business. Given its updated product line and our expectation of a favorable seasonal impact, we advise purchase.


Sony Corp. (SNE): Upgrades to 3 STARS (hold) from 2 STARS (sell)
Analyst: John Yang
With the ADRs reaching our 12-month target price, we see further downside risk limited, as bad recent news from battery recall and PS3 launch seems to us adequately priced in. We are maintaining our fiscal year 2007 (March) EPS estimates of 65 cents, reflecting Sony's guidance for a special charge of about $430 million, which we think could increase to $680 million. Our fiscal year 2008 estimate remains 64 cents. Despite the charge, we expect Sony to remain profitable, and view its financial position as strong. Our 12-month target price remains $38, blending historical low price/book of 1.7 with a p-e of 45.

Sirius Satellite Radio (SIRI): Maintains 5 STARS (strong buy)
Analyst: Tuna Amobi, CPA, CFA
After the company pre-announced 441,101 third-quarter net subscriber adds, vs. 285,000 for rival XM Satellite (XMSR; ranked 3 STARS, hold), we think Sirius is on track to add another 1.2 million in the fourth quarter. We have high hopes for strong holiday retail sales of Stiletto 100, Sirius' first live portable offering with WiFi capability. But despite the favorable end to FCC emission probe, we think these high-risk shares have been stalled by overall sentiment on satellite radio. We note that Sirius recently affirmed its target of $3 billion revenue and $1 billion free cash by 2010. Our 12-month target price stays $8 on relative enterprise value/sales.

Qwest Communications (Q): Maintains 2 STARS (sell)
Analyst: Todd Rosenbluth
The share buyback program announced by Qwest, if completed, would reduce its share count by 12%. Given a strong share price rise this year and a premium EBITDA valuation, we had expected Qwest was more likely to institute a dividend. We believe the news indicates Qwest's confidence in its fundamentals. But with competitive pressure and the lack of wireless growth, we have become more skeptical of EBITDA growth. And with higher capex we project, we think Qwest will be targeting most of 2007's free cash flow to buybacks. However, supported by the buyback plan, our 12-month target price rises $1 to $7.


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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