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S&P Keeps Buy on Yahoo

Yahoo (YHOO): Reiterates 4 STARS (buy)

Analyst: Scott Kessler

An unconfirmed report in indicates that Yahoo is in talks to acquire 35% of Alibaba for some $1 billion. Alibaba is a leading e-commerce company in China that owns payment service AliPay and about half of the consumer auction business Taobao. We think this potential deal would be quite complicated because of Softbank's stake in Taobao and Yahoo's joint venture with Sina Corp. (SINA). We think this constitutes a price/sales valuation that is pricey, but seems more reasonable given Alibaba's market position and notable interest in Chinese Internet properties.

eBay (EBAY): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

In an unconfirmed story, indicates Yahoo is in talks to acquire a minority stake in Chinese e-commerce company Alibaba, which owns about 50% of consumer auction business Taobao and all of payment service AliPay. We think this potential deal would be complicated due to Softbank's stake in Taobao and lpai, Yahoo's consumer-auction venture with Sina Corp. However, we think this deal, if completed, would constitute a substantial threat to eBay's China businesses. Taobao indicated it had greater first-quarter gross merchandise volume than eBay, and 1pai is the No. 3 player.

McDonald's (MCD): Reiterates 5 STARS (strong buy)

Analyst: Dennis Milton, Frank Braden

Global systemwide sales grew 6.1% in July, primarily on same-store sales growth of 4.9% from a year ago. Same-store sales grew 4.9% in the U.S., 5.3% in Europe and 4.1% in the Asia-Pacific/Middle East/Africa segment. The European sales results are an improvement upon recent trends. We are maintaining our 2005 EPS estimate at $1.96, and our 12-month target price of $38. At 16 times that EPS estimate, McDonald's shares are at a slight discount to peers, despite our view of the company's strong sales momentum.

Nvidia (NVDA): Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Amrit Tewary

Following their run-up over the past few months, we find these high beta shares to be less compelling. With limited upside to our 12-month target price of $32, we now think Nvidia will perform roughly in line with chip peers. Ahead of July-quarter results, we see earnings per share of 34 cents on roughly flat sequential revenues. We think pricing pressure will dampen revenues in the seasonally weak July-quarter. We see recent agreements with Sony and Intel expanding Nvidia's long-term market opportunity, but we would not add to positions at current levels.

Whirlpool (WHR) and Maytag (MYG): Maintain 3 STARS (hold)

Analyst: Amy Glynn, CFA

Whirlpool announces binding offer to acquire Maytag at $20 a share, topping the $14 bid from Ripplewood Holdings. We expect Maytag's board to accept this new offer on or before the Aug. 20 expiration. The offer includes a $120 million reverse breakup fee if the deal does not get regulatory clearance, but we see a better than 50% chance it would get approval. We think Whirlpool would benefit from a planned merger, pending approvals, over the long term, based on competitive position and brand power we think would result, but we are bit concerned about possible integration issues, costs. Our target price for Whirlpool remains $85. On terms of the revised deal, our target price for Maytag rises by $2 to $20.

E*Trade (ET): Reiterates 5 STARS (strong buy)

Analyst: Robert Hansen, CFA

E*Trade said today that it sees annual pre-tax operating synergies of about $186 million and 17 cents per share in earnings accretion from its planned $700 million acquisition of the U.S.-based online brokerage operations of Harrisdirect, subject to approvals. Despite previous consolidation opportunities missed by E*Trade, we think this transaction shows that E*Trade is a long-term contender within what we view as a rapidly consolidating industry. We are leaving our 2005 EPS estimate at $1.05, but raising our 2006 EPS estimate to $1.25 from $1.20. Our 12-month target price stays at $20, or 16 times our 2006 estimate.

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