Markets & Finance

S&P Keeps Yahoo! at Buy


Yahoo! Inc. (YHOO): Reiterates 4 STARS (buy)

Analyst: Scott Kessler

Yahoo announced a $3 billion stock repurchase program. This amounts to 6.6% of the company's outstanding diluted shares as of Dec. 2004. The company completed its March 2001 buyback of $500 million, with $165 million in purchases in the first quarter alone. Although the new authorization is set for five years, Yahoo! has been very active of late in buying back its stock and we expect this to continue. We think this morning's announcement indicates Yahoo has confidence in its businesses and prospects, and sees its shares as currently undervalued. We are positive on the news and the stock.

Koninklijke Philips Electronics (PHG): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analysts: Habib Nasrallah, CFA, Claudia Germann

We expect Philips to report improved 2005 results in its higher-margin lighting, domestic appliance, and medical equipment divisions, cushioning weakness in both its semiconductor and consumer electronics divisions. We also anticipate semiconductor division margins improving toward the end of the year as a result of management restructuring. We are increasing our 2005 earnings per ADR estimate to $1.58 from $1.36, but lowering 2006's to $1.98 from $2.09. Our 12-month target price rises to $31 from $28 based on our sum-of-the-parts and discounted-cash-flow valuations.

Infineon Technologies (IFX): Upgrades to 2 STARS (sell) from 1 STAR (strong sell)

Analyst: Habib Nasrallah, CFA

Despite the upturn we expect in the semiconductor industry during the second half of 2005, we project Infineon as a notable exception because of its large exposure to DRAM, an area we view as having an unfavorable outlook. We are cutting our 2005 earnings per ADS estimate for Infineon by 17 cents to 12 cents, but increasing 2006's by 4 cents to to 25 cents. We are raising our 12-month target price by 50 cents to $9, 6% below its price now, based on discounted-cash-flow and market cap/equity valuations. We continue to think an expansion of Infineon's historically low p-e is unlikely, given our view of the company's problematic outlook.

AT&T (T): Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth

AT&T announces that it has signed a long-term wholesale agreement with BellSouth that will allow AT&T to continue its local consumer services in the Southeastern U.S. Terms were not disclosed. We believe that the agreement is partly stimulated by FCC rules that raised wholesale access rates this month. However, we contend that the collegial relationship BellSouth has with Cingular co-parent SBC Communications and SBC's pending deal to acquire AT&T, awaiting approvals, is also a factor behind the contract. We believe AT&T's consumer unit remains core to its operations.

Adaptec (ADPT): Reiterates 3 STARS (hold)

Analyst: Richard Stice, CFA

Adaptec announces that it now sees March-quarter revenue of 9% to 13% below its previously guided range of $127 million to $131 million, citing enterprise disk drive shortages. We are reducing our fiscal 2005 (ending March) earnings per share estimate by 5 cents to 3 cents. Our new 12-month target price of $5, lowered from $7, is based on updated risk assumptions within our discounted cash flow model. Although we view the news as disappointing, we believe further downside risk is limited. Adaptec's balance sheet contains nearly $5 per share in cash and we anticipate a return to positive free cash flow generation in fiscal 2006.


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