Analyst: Kenneth Leon, CPA
We concur with Barron's favorable article on the opportunities for the WiMAX industry. We believe this emerging market should meet some key milestones ahead: the IEEE global standard approval in late 2005 for fixed wireless and the rollout of WiMAX chips by Intel and other firms. WiMAX trials are underway by AT&T (T
; ranked 3 STARS, hold), BT Group (BT
; 3 STARS), and Sprint (FON
; 4 STARS, buy). The equipment suppliers we see well positioned for WiMAX are Alvarion (ALVR
; 5 STARS, strong buy), Alcatel (ALA
; 3 STARS), Ericsson (ERICY
; 4 STARS), Airspan (AIRN
; 4 STARS), Motorola (MOT
; 4 STARS) and Nokia (NOK
; 3 STARS).
Johnson & Johnson (JNJ
): Reiterates 4 STARS (buy)Boston Scientific (BSX
): Reiterates 3 STARS (hold)
Analyst: Robert Gold
In the latest of a series of patent litigation rulings between Boston Scientific and Johnson & Johnson's, a Delaware jury found that J&J's Cypher drug coated stent infringed on Boston Scientific's Ding patent. In June, a jury found that Boston Scientific infringed on some of J&J's drug-coated stent patents and we are therefore reluctant to declare a victor in these complex, ongoing lawsuits. In our view, both Boston Scientific and J&J will ultimately be inclined to reach a settlement and we think this latest ruling puts Boston Scientific in a better bargaining position, after some recent legal setbacks.
Nextel Communications (NXTL
): Maintains 4 STARS (buy)
Analyst: Kenneth Leon, CPA
Nextel Partners shares are down 8% from their recent 52-week high amid risks about the price Nextel may have to pay for the remaining 68% of Nextel Partners it does not own. Nextel Partners has an option to exercise its contractual put right to Nextel, with a change in control expected with the proposed merger of Sprint and Nextel. Both parties have submitted SEC filings that raise concerns. Nextel Partners claims the Sprint-Nextel merger violates its exclusivity rights with Nextel, and has also filed with the New York Supreme Court to keep the status quo until certain issues are resolved.
Mohawk Industries (MHK
): Maintains 3 STARS (hold)
Analyst: Amy Glynn, CFA
Mohawk agrees to acquire Belgium-based Unilin Holding NV, a leading manufacturer of laminate flooring products with about $1.0 billion (837 million euro) in sales. Proposed deal is valued at about $2.6 billion, or 9 times EBITDA, and is expected to close in the fourth quarter, pending necessary approvals. Partly based on success of Mohawk's 2002 acquisition of Dal-Tile, our initial view is positive, as we see a high likelihood of successful integration and opportunities for Mohawk to grow its presence in the fast-growing laminate flooring market.
Bausch & Lomb (BOL
): Reiterates 5 STARS (strong buy)
Analyst: Robert Gold
Bausch & Lomb agrees to buy a 55% stake in Shandong Chia Tai Freda Pharmaceutical Group for $200 million cash, and agrees in principle to purchase another 15% for $54.5 million. We think purchase would provide Bausch & Lomb with valuable sales and distribution capabilities in China, where it already has manufacturing facilities. The deal is to close in the third quarter, subject to required approvals. Excluding transaction costs, Bausch & Lomb sees 5 cemts tp 10 cents earnings per share accretion in 2006 and 10 cents to 15 cents in 2007. We are raising our target price by $18 to $109, based on peer-average p-e-to-growth ratio of 1.6 applied to our 2006 earnings per share estimate of $4.05.
Young Broadcasting (YBTVA
): Downgrades to 2 STARS (sell) from 3 STARS (hold)
Analysts: Gary McDaniel, Amy Glynn, CFA
Young Broadcasting lowers its 2005 guidance for revenue to $200 million to $204 million from $205 million to 209 million and for station operating income to $40 million to $42 million from $47 million to $50 million, blaming poor results at Kronos and weak national ad sales. We are reducing our estimates for revenue to $200 million from $207 million and for operating income to $39 million from $43 million, and widening our loss estimate to $3.87 from $3.68. Our 12-month target price falls to $3.00 from $5.50, based on an enterprise value-to-station operating income multiple of 18 times, primarily reflecting the value we believe YBTVA could realize in a sale of Kronos.
MBIA Inc. (MBI
): Upgrades to 2 STARS (sell) from 1 STAR (strong sell)
Analyst: Catherine Seifert
We believe shares of this financial guaranty insurer have been buoyed recently by better-than-expected first-quarter results and by the view that demand for certain structured finance credit enhancement products may rise. But we see heightened regulatory uncertainty and questions concerning certain reserving and reinsurance practices pressuring shares in coming periods. We note MBIA's modest valuation of 1.3 time book, in line with peers, vs. 1.8 time for property-casualty insurers, but see a modest contraction in MBIA's valuation. We are raising our 12-month target price from $50 to $57, 1.2 time book.