): Downgrades to 4 STARS (buy) from 5 STARS (strong buy)
Analyst: Kenneth Leon, CPA
May-quarter earnings per share of 56 cents, vs. 36 cents, before special items, is in line with our estimate and a penny above the Street's. Global demand and better-than-expected BlackBerry unit volume shipments boosted sales. While sales were above our target, we believe price pressure on BlackBerrys may narrow margins for fiscal 2006 (ending February), even though RIMM did raise August-quarter earnings per share guidance. Our fiscal 2006 earnings per share estimate falls from $2.60 to $2.50 and our 2007 to $3.25 from $3.30. Despite legal risks with NTP Inc., we see RIMM as attractive at 27% below its 52-week high, in line with peers but, in our view, growing faster.
Bank of America (BAC
): Reiterates 5 STARS (strong buy)
Analyst: Mark Hebeka, CFA
Bank of America agreed to acquire credit card issuer MBNA Corp. for some $35 billion, subject to approvals. We are encouraged by potential efficiencies, and look for Bank Of America to rapidly integrate operations. The transaction is a logical move for Bank Of America, in our opinion, given Bank Of America's depository restrictions, and we see this as an opportunity to diversifiscal revenues by doubling its card base, bringing it to about 40 million customers and $143 billion in balances. While we view the price of approximately 2.75 times book value as rich, we believe the potential synergies warrant it.
): Reiterates 3 STARS (hold)
Analyst: Robert Friedman, CPA
We see Boeing's naming of Jim McNerney as next CEO as a big coup, as he brings wealth of business development experience. Formerly General Electric's jet engine chief and 3M's CEO, we believe McNerney knows how to transform mature products into platforms for high-margin recurring earnings streams from services and consumables. Our sustainable return-on-equity forecast rises to 15% to 17% and free cash flow growth rates rise to 7.5% to 8.5%. As such, we are raising our discounted-cash-flow-based target price to $70 from $65. But, we do not see enough margin of safety to add to positions.
Countrywide Financial (CFC
): Maintains 3 STARS (hold)
Analyst: Jason Seo, CFA
Countrywide plans to purchase the assets of KB Home's mortgage subsidiary. The two companies also announce the formation of a 50-50 joint venture that will make residential loans to KB Home customers. Given KB Home's large customer base, we believe the transaction will boost Countrywide's market position. We are maintaining our 2005 earnings per share estimate of $4.17. However, we are increasing our 12-month target price by $4 to $41, or approximately 9.9 times our 2005 earnings per share estimate, in line with Countrywide's peer group of mortgage lenders.