Markets & Finance

S&P Keeps Sell on Eastman Kodak


Eastman Kodak (EK) : Reiterates 2 STARS (sell) Opinion

Analyst: Richard Stice, CFA

At an analyst meeting today, Kodak provided an update on its financial targets and restructuring efforts. It says that digital segment earnings growth is likely to be below its 2005 plan, although it still sees an increase of more than 300% from a year earlier. While we acknowledge Eastman Kodak's progress within the digital space, we believe competition will be much more intense than in the traditional film market. Combined with our ongoing concerns about management's forecasting ability, we advise investors to place funds elsewhere. Our 12-month target price remains $23.

Fannie Mae (FNM) : Reiterates 3 STARS (hold) Opinion

Analyst: Jason Seo, CFA

Fannie Mae shares are down sharply, we believe on investor reaction to an unconfirmed Dow Jones Newswires story that said additional accounting violations have been uncovered by investigators, including overvaluation of assets and underreporting of credit losses. Until further details become available, we maintain our view that despite Fannie Mae's strong position in securitizations by government-sponsored enterprises, regulatory risk will continue to weigh on its shares. We are cutting our target price by $5 to $50, 7.6 times our 2005 earnings per share estimate of $6.63, a discount to other mortgage lenders.

American International Group (AIG) : Reiterates 4 STARS (buy)

Analyst: Cathy Seifert

We expect AIG's management team to remain positive on property-casualty premium pricing trends that will likely emerge in the wake of Hurricanes Katrina and Rita. We believe another focus at today's analyst meeting will be to highlight the newly installed management team, and to assure investors the company is "back on track." We see AIG as a beneficiary of an upturn in property-casualty industry pricing, and we continue to view positively its overseas life insurance franchise. Our $72 12-month target price assumes the shares trade at about 2 times estimated 2006 tangible book, a premium to peers.

AstraZeneca (AZN) : Reiterates 5 STARS (strong buy)

Analyst: David Seemungal

American depositary shares of AstraZeneca were lower Thursday after news of a patent challenge by Teva Pharmaceutical to its Seroquel anti-psychotic, which had U.S. sales of $1.5 billion last year. We think AstraZeneca, which is confident of its patent, will soon file patent infringement suit against Teva, triggering a 30-month stay under Hatch-Waxman

litigation. We think share price reaction is overdone, given that these kinds of challenges are commonplace, and Teva released no specific grounds to its challenge. We maintain our target price of $51 on the ADSs, and our 2005 and 2006 earnings per ADS estimates of $2.78 and $3.02, respectively.

PepsiCo (PEP) : Reiterates 5 STARS (strong buy)

Analyst: Richard Joy

The soft drink giant is scheduled to report third quarter results on Sept. 29, and we expect EPS of 73 cents, up nearly 11% from a year earlier. We are forecasting revenue growth of 7%-8%, reflecting continued strong growth for the company's international business, strong gains for its non-carbonated beverage portfolio, and a solid performance from snack foods. We expect volume growth of 4.5%-5%, with North American businesses up 4%-5%, international up 8%-10%, and Quaker foods up 2%-3%. We believe the shares are attractive, based on

the company's strong cash flow and EPS visibility.

CSG Systems International (CSGS) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Todd Rosenbluth

We believe CSG should benefit from new Internet telephony services being offered by its U.S. broadband customers over the next 12 months in an effort to compete with telecom providers. We view CSG's international operations, particularly in Asia-Pacific, as a potential contributor to growth, but we believe the segment has been a recent drag on operating results. Our downgrade is based on valuation, as shares are up 11% since late July and are near our 12-month target price of $21, which is based on a p-e of 19 times applied to our 2006 earnings per share estimate of $1.11, in line with peers.

TXU (TXU) : Reiterates 3 STARS (hold)

Analyst: Justin McCann

In light of the strong year to date gains, we see only modest price appreciation from the current level. We believe the shares have benefited from the expectation of higher wholesale power prices and electric rates, reflecting the sharp rise in natural gas prices, which has been even more exacerbated by the impact of the hurricanes. While we are maintaining our 2005 earnings per share estimate of $6.45, we are raising our 2006 estimate by 80 cents to $8.35. We are also raising our 12-month target price by $15 to $113, or a p-e of 13.5 times our new 2006 earnings per share estimate, still a discount to peers.


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