Continental Airlines (CAL): Upgrades to 5 STARS (strong buy) from 3 STARS (hold)
Analyst: Jim Corridore
Continental's unions finish voting today on concessions, and we think that there is a good chance the vote will go the company's way. Union leaders have endorsed the give-backs, Continental has done a full-court press to inform employees of the necessity, and we think the company has a good relationship with its unions. We believe a positive vote would move the share price. In addition, unit revenues
seem to be improving modestly and oil supply levels have us thinking that upward pressure on fuel costs may lessen. Our 12-month target price is $14, up from $10, 11 times our 2006 EPS estimate of $1.25.
Hewlett-Packard (HPQ): Reiterates 3 STARS (hold)
Analyst: Megan Graham-Hackett
At its call, Hewlett-Packard announced Mark Hurd as its new CEO effective Apr. 1. From Mr. Hurd's comments, we believe he will focus on optimizing operational performance of each business in the near term and that any portfolio decisions, such as potential spin-off of the printing unit, will take more than a year. We agree with this approach but believe issues such as Hewlett-Packard's unique corporate culture and building synergies between businesses in the company's portfolio still need to be addressed. Still, with Hewlett-Packard trading at a price/sales of 0.8 times, below peer average, we view as worth holding.
Walt Disney Company (DIS): Reiterates 4 STARS (buy)
Analyst: Tuna Amobi, CPA, CFA
Disney and the Weinstein brothers agree on Miramax separation effective Sept. 30, 2005, with Disney keeping Miramax/Dimension library and the Miramax name, and the Weinsteins getting some current projects and Dimension name/sequel rights plus an unconfirmed $140 million cash, per a Wall Street Journal report. Both sides plan collaboration on future films. We think this news should resolve dispute on 12-year alliance. With titles like Chicago, English Patient, Goodwill Hunting, Shakespeare In Love and Aviator, we see Disney's continued ownership of the entire 550-title library, perhaps worth over $2 billion, as the most crucial element of deal.
Micron Technology (MU): Reiterates 2 STARS (sell)
Analyst: Amrit Tewary
Micron posted February-quarter earnings per share of 17 cents, vs. a 4-cent loss, 3 cents above our estimate. Despite a 15% sequential decline in average selling prices, results benefited from higher-than-expected memory production and lower-than-expected taxes. We expect May-quarter sales to fall 2% from the February-quarter, as a sharp decline in ASPs should more than offset sales volume growth. We are maintaining our fiscal 2005 (ending August) earnings per share estimate of 59 cents, but raising our fiscal 2006 estimate to 56 cents from 46 cents on revised sales assumptions. Our 12-month target price remains $10, based on p-e and price-to-sales analyses.
Ahold Ltd. (AHO): Reiterates 3 STARS (hold)
Analyst: Jonathan Agnese
Ahold reported 2004 operating earnings per ADR of 0.29 euro, 0.06 euro ahead of our expectations. Despite revenue gains, we were disappointed by slower-than-expected margin improvement within the U.S. Food Service division, and narrower margins in the Stop & Shop and Giant Landover segments. As a result of our reduced margin expansion forecast, we are lowering our 2005 operating earnings per ADR estimate to 52 cents from 54 cents, and our 2006 estimate to 67 cents from 70 cents. However, our 12-month target price remains $9, based on our forward p-e analysis.