Markets & Finance

S&P Keeps Strong Buy on News Corp.


News Corp. (NWS.A): Reiterates 5 STARS (strong buy)

Analyst: Tuna Amobi, CPA, CFA

The shares are up after a solid fourth quarter and fiscal year 2006 (September) guidance. While we see potential governance conflicts with its poison pill extension, CEO Murdoch, in response to our fourth-quarter question, said the company may yet eliminate the takeover defense and classified board, pending talks on Liberty's (L) stake. While the talks have surprisingly stalled, we advise focus on key near-term catalysts we see for the shares, including a strong and vertically integrated global media and entertainment assets, aggressive stock buyback, and meaningful dividend hike. Our 12-month sum-of-parts target price stays at $24.

Target (TGT): Upgrading to 4 STARS (buy) from 3 STARS (hold)

Analyst: Jason Asaeda

July-quarter earnings per share of 61 cents, vs. 45 cents, beats our 58 cents estimate. Results benefited from above-plan 6.7% same-store sales growth, higher merchandise markups, and reduced markdowns. We are increasing our fiscal year 2006 (January) EPS estimate by 3 cents to $2.67, since we see improving assortments and supply chain initiatives sustaining Target's positive sales and earnings momentum. We are lowering our 12-month target price by $1 to $63, reflecting higher projected capex growth in our discounted cash flow model. But given our view of strong fundamentals and the recent share price decline, we regard the shares as attractive.

Tommy Hilfiger (TOM): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Marie Driscoll, CFA

Tommy Hilfiger posts June-quarter preliminary results with sales down 3% to $319 million and a smaller (not quantified) loss, vs. year-ago $7.6 million or 8 cents loss. The company expects delayed financials to be filed in September. Tommy Hilfiger has resolved the U.S. Attorney investigation with $18.1 million in added federal taxes and interest payments, removing a major concern we had. We are raising our 12-month target price to $15 from $8, applying a median 12.3 total enterprise value/EBIT peer group multiple and removing a discount we had applied for uncertainty related to the criminal investigations. For fiscal year 2006, we see EBIT of $120 million, up 30%.

Yahoo (YHOO): Reiterates 4 STARS (buy)

Analyst: Scott Kessler

Yahoo announces a major strategic partnership in China with Alibaba.com, whose interests include domestic and international business-to-business marketplaces, an online payments service, and a consumer auction company, all of which we believe are No. 1 or No. 2 in their markets. Yahoo is contributing its China businesses and $1 billion for a 40% stake in the combined Alibaba.com. We believe the transaction, which we expect to close by yearend, pending approvals, is a major positive for Yahoo as it pursues growth in what we believe is one of the world's most important online markets.

eBay (EBAY): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

We think the pending combination of Yahoo's China businesses and Alibaba.com is notable negative for eBay, which has made China a major priority. Alibaba's Taobao consumer auction business was already more than holding its own against eBay in China, and we think adding Yahoo's resources and assets, including its portal and stake in e-commerce venture 1pai, would only enhance its prospects. The deal, which we expect to close in the fourth quarter, pending needed approvals, would combine No. 2 and No. 3 players in China Internet auctions under what we consider strong management.

Commerce Bancorp (CBH): Downgrading to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Christopher Muir

Commerce Bancorp shares have risen 7.3% over the past four trading days. As a result, we see a one-year total return potential of about 14%, based on our 12-month target price of $40 and the stock's 1.3% dividend yield. Our target price is based on our dividend discount model and relative value analysis. We believe Commerce Bancorp will continue to efficiently execute its market expansion plan, which generally includes building branches in new target markets rather than acquiring existing branches. We look for it to announce successful branch openings in Washington, D.C., and in Florida in coming years.


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