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CORRECTION: Research In Motion(RIMM
): Maintains 4 STARS (buy)
Analyst: Kenneth Leon, CPA
An earlier version of this story incorrectly gave RIMM's rating as strong buy. RIMM announced plans to expand its BlackBerry offerings with Airtel, India's leading wireless carrier, another sign of what we view as the company's lead in securing strategic customers in Asia. In our view, messaging among business users is beginning to hit critical mass in emerging markets like India and Southeast Asia. We believe RIMM will remain one of the market leaders with its BlackBerry Enterprise Servers that interoperate with wireless networks. With an 18% pullback in last three weeks, we believe RIMM shares are attractive, and our 12-month target price remains $86.
China Mobile (CHL
) : Maintains 4 STARS (buy) Opinion
Analyst: Kenneth Leon, CPA
China Mobile agreed to acquire 66.5% of Peoples Telephone from China Resources and Onwel Capital for HK$2.2 billion. The offer price is a 17% premium to the last closing price. We believe the revenue contribution from Peoples 1.2 million subscribers will not be material to China Mobile's 223.8 million subscribers. We are also disappointed that Peoples does not own a 3G license in the competitive Hong Kong mobile market. Despite our concerns about the proposed deal, we believe the American Depositary Shares are attractive, with China Mobile leading the China mobile market with a two-thirds market share position. AU Optronics (AUO
) : Reiterates 3 STARS (hold) Opinion
Analyst: Megan Graham-Hackett
AU Optronics's September revenues rose 8.9% sequentially, 69.6% year-over-year. Building on a strong August, large-size panel shipments rose 2.2%, while small- and medium-size panels jumped 29%. We are raising our third quarter earnings per American Depositary Share (ADS) estimate to 29 cents from 23 cents, due to stronger shipments than we had expected, aided, we believe, by a steady ramp of a new fab, healthy notebook and LCD TV sales. Our full 2005 earnings per ADS estimate rises by 14 cents to 66 cents. We remain concerned about AU Optronic's high net debt-to-equity level, but with a price/sales of 0.9 times, near peers, we view shares as fairly valued. Citadel Broadcasting (CDL
) : Reiterates 4 STARS (buy) Opinion
Analyst: Gary McDaniel
Citadel announced that it is initiating a quarterly dividend of 18 cents per share, equal to a 5.3% dividend yield; far in excess of the 1.8% average yield for the S&P 1500. The annual dividend payment would represents nearly 56% of cash from operations over the past twelve months. Although we expect the dividend payments to come at the expense of decreased share buybacks, which totaled $200 million from June 2004 through July 2005, we believe Citadel has sufficient cash flow to fund the dividends, given its low capital needs; we expect capital spending of $10 million in 2005. Plantronics (PLT
) : Ups to 3 STARS (hold) from 1 STAR (strong sell)
Analyst: Ari Bensinger
We attribute the company's recently lowered September quarter guidance largely to sales disruption from a transition to new products. However, we believe recent execution issues related to new product development and supply chain are fixable. We also think integration of the Altec Lansing acquisition is on target, with Altec contributing roughly $20 million to September quarter revenue, in line with our forecast. With several new products now in place for the important holiday season, we are upping our December quarter sales forecast. Based on revised discounted cash flow and peer analyses, we are raising our 12-month target price by $2 to $28. Cimarex Energy (XEC
) : Ups to5 STARS (strong buy) from 4 STARS (buy)
Analyst: Richard Tortoriello
Cimarex's price has pulled back about 10% over the past three days. Its p-e ratio of 9 times our 2005 earnings per share estimate of $4.50 is below the current peer average of 10 times, and below a five-year historical peer average of almost 12 times. We estimate that at current production levels, Cimarex has over eight years of proved reserves, about 67% natural gas. We believe the company's disciplined drilling process, which is based on an evaluation of risk/return, is likely to maximize future production and increase reserve levels. Our 2006 earnings per share estimate remains at $4.38, and our 12-month target price at $50. Patterson-UTI Energy (PTEN
) : Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Stewart Glickman
With growing concern over potential demand eliminations for hydrocarbons, we are less enthusiastic about prospects for the company, which we see as among the most price-sensitive stocks in the oil and gas drilling and oilfield services sectors. As a result, we believe a slight discount to peers is now warranted. Its shares are trading at 6.4 times our estimate of 2006 earnings before interest taxes depreciation and amortization, below peers' 7.4 times, and at a modest discount to peers on price/cash flow and p-e metrics. Assuming a 7 times multiple on earnings before interest taxes depreciation and amortization, and blending with price/cash flow and p-e valuations, our 12-month target price drops $4, to $34. Unionbancal (UB
) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Jason Seo, CFA
Our upgrade is based on valuation. The company's shares have slipped back from their July highs, we believe in part on investor concerns about a potential housing bubble. It is our opinion that this offers a buying opportunity, given our view of a positive outlook on the bank's expanding net interest margins, low cost of funds, well-balanced asset mix, excellent credit quality, and high exposure to a California economy we see as vibrant. We are increasing our 12-month target price by $5, to $76, about 14 times our 2006 earnings per share estimate of $5.47, in line with its peer group of western banks.