Markets & Finance

S&P: Still Hold Marsh & McLennan


Marsh & McLennan (MMC): Maintains 3 STARS (hold)

Analyst: Gregory Simcik, CFA

Marsh & McLennan posted fourth-quarter loss of $1.28, vs. earnings per share of 69 cents, $1.76 below our estimate. The company also cuts its dividend 50% and announces possible new layoffs of 2,500, bringing total layoffs up to 9% of workforce, with targeted annual expense savings approaching $800 million, near our forecast of lost contingents in 2005. The dividend cut is much larger than we expected, as we believed the settlement installment plan provided Marsh & McLennan with more financial flexibility. We are also concerned with revenues in 2005 if new layoffs include producers. We will update after today's conference call.

IAC/InterActive Corp. (IACI): Reiterates 2 STARS (sell)

Analyst: Scott Kessler, Richard Stice, CFA

IAC announced a plan to acquire Cornerstone Brands, a provider of print catalogs and online retailing sites, for a net price of $720 million. The transaction is expected to close during second-quarter of 2005, pending necessary approvals, with Cornerstone expected to become part of IAC's Electronic Retailing unit. However, we remain concerned with what we view as rising competition and limited growth prospects in the online travel market. As a result, we advise investors to sell the shares. Our 12-month target price remains $22.

WPP Group (WPPGY): Maintains 4 STARS (buy)

Analyst: Yannick Mathieu, CFA, James Peters, CFA

WPP Group posted second-half 2004 results of $1.68, vs. $1.37, in line with our expectation. Revenues grew 1.3% in local currency, and operating margins widened to 15.1% from 13.6%, confirming our belief that WPP continues to gain market share and exploit margin expansion opportunities from its recent acquisitions. We are raising our 2005 earnings per ADS estimate to $3.60 from $3.37, before the impact of IFRS changes that will be detailed later in first-quarter, but including a lower anticipated tax rate. We are raising our 12-month target price to $54 from $49, based on our revised discounted-cash-flow valuation.

RF Micro Devices (RFMD): Maintains 3 STARS (hold)

Analyst: Zaineb Bokhari

RF Micro Devices discontinues its internal WLAN chipset development business. No material revenues are associated with this decision, and RF Micro Devices expects to realize annual cost savings of $18 million to $22 million, with a large percentage occurring in the June-quarter. Its WLAN gaming, front end module and power amplifier businesses will continue. RF Micro Devices expects non-cash impairment charges of $37 million to $41 million and cash severance charges of $2 million to $3 million in the March-quarter. We are raising our fiscal 2006 (ending March) operating earnings per share estimate to 13 cents from 8 cents. Our 12-month target price stays $6, a historical 2.0 times price-to-sales on our calendar year 2005 estimate.


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