Markets & Finance

S&P Raises Google Target Price


Google (GOOG) : Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Before certain one-time and non-cash items, Google posted third quarter earnings per share of $1.52 vs. 70 cents, well above our $1.30 estimate. Revenues rose 96%, paced by Google websites. We project continuing global strength for the search-advertising market, and relatively stable-to-increasing market share growth for Google. We are raising our

earnings per share estimates for 2005 to $5.80 from $5.53 and for 2006 to $8.09 from $7.36. Our target price rises to $364 from $327, on revised discounted cash flow and peer analyses. We think Google has a compelling search franchise, but foresee intensifying competition in the coming months and years.

Nokia (NOK) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Subhajit Gupta

Nokia's third quarter results, reported yesterday, were hurt by lower network operating margins due to an increasing sales mix toward developing countries. However, we expect Nokia's handset market share, which we estimate at about 33%, to edge up in the fourth quarter. We also expect operating margins to rise by over 2% to 15.8%, reflecting higher operating leverage from increased handset volumes during the holiday season. We are raising our 2005 earnings per American Depositary Shares estimate to EURO 0.88 from EURO 0.84. Based on revised intrinsic and relative analyses, we are raising our target price to $17 from $16.

SanDisk (SNDK) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Richard Stice, CFA

The company posted third quarter earnings per share of 55 cents vs. 29 cents, well above our 36 cents estimate. Product revenues rose 45%, boosted by faster growth than we anticipated in the mobile phone market. We are raising our 2005 and 2006 earnings per share estimates by 29 cents and 36 cents, respectively, to $1.91 and $2.18. Based on upward revisions to our discounted cash flow growth assumptions and combined with a relative p-e metric, our 12-month target price rises to $55 from $32. Although shares trade at premium to the S&P Computer Storage & Peripherals sub-industry, we believe the valuation is justified given our view of potential end-market opportunities.

FPL Group (FPL) : Ups to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Justin McCann

In light of the recent decline in the shares, we believe the stock has the potential for even greater total return. While shares have been hurt by an overall decline in the sector, as well as concerns over Hurricane Wilma, we still see the FPL Energy unit benefiting from higher power prices and driving FPL's consolidated earnings per share growth by about 15% in both 2006 and 2007, with potential for about 9% growth for 2008 and 2009. Given the recent decline in the sector, we are reducing our 12-month target price by $2 to $52, based on an above-peer p-e of 15.8 times our 2007 earnings per share estimate of $3.30.

Sunstone Hotel Investors (SHO) :Stars coverage at 4 STARS (buy)

Analyst: Scott Hoina, CFA

We expect Sunstone Hotel Investors to benefit from the current upturn in the lodging cycle. We think its high exposure to the upscale hotel segment will drive strong revenue per available room growth and that its recent acquisitions of premium brand hotels with higher-than-average room rates will facilitate margin expansion. We see $2.12 2005 adjusted per-share funds from operations, rising to $3.06 by 2007, and representing significant growth. Our target price of $26 is based on our dividend discount model and is equal to 10 times our 2006 $2.62 funds from operation estimate, a multiple in line with peers.

Chevron (CVX) : Ups to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Tina Vital

Chevron estimated that about 40% of its 325,000 barrels of oil equivalent per day Gulf production has been restored in the aftermath of Katrina and Rita, and its Pascagoula, Mississippi refinery was restarted on October 5. Overall, we see higher oil and gas prices, strong refining margins and contributions from its Unocal merger more than compensating for storm losses. We are raising our 2005 earnings per share estimate by 70 cents to $7.35, and 2006's by 86 cents to $7.88. Based on a blend of our discounted cash flow and peer valuations, we are raising our target price by $12 to $82, an enterprise value to 2006 earnings before interest taxes depreciation and amortization estimates in line with peers.

Radioshack (RSH) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Amy Glynn, CFA

Third quarter operating earnings per share of 36 cents vs. 43 cents misses our 38 cents estimate on higher sales, but gross margin deteriorated from a negative mix shift and aggressive pre-holiday inventory clearance. We think Radioshack is very focused on holiday sales, gearing up with new offerings such as Apple's (AAPL) iPod, but its wireless transition at year-end remains the most critical issue. We see risk, but with shares down 15% since the transition was announced, we think the share price reflects our concerns. Our 2005 earnings per share estimate stays $1.84, but our 2006 rises to $2.05 from $2.01 and our target price by $1 to $24.

Autoliv (ALV) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Lars Glamstedt

Third quarter earnings per share of 66 cents vs. 72 cents is in line with our estimate. We continue to expect relatively weak organic sales growth in the short term, partly because of Autoliv's exposure to weak-performing car models. However, we believe the company's weak share price, its 3% dividend yield, and the high likelihood of continued share buybacks support our upgrade. We are increasing our 2005 earnings per share estimate to $3.38 from $3.26, and 2006's to $3.46 from $3.45. We are raising our 12-month target price by $1, to $42, based on p-e of 12 times our 2006 earnings per share estimate, a 12% premium to the group average.


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