Markets & Finance

S&P: Still Hold BellSouth, HCA


BellSouth (BLS) : Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth

Following BellSouth's third quarter conference call, we remain concerned about its wireline operations. As of October, BellSouth was providing billing credits to 2% of its customer lines because of hurricanes and we are uncertain how many lines will be retained with increased competition and family displacement. However, we are raising our 2006 earnings per share estimate by 6 cents to $1.84 to reflect our view of improved wireless prospects and BellSouth's planned share buyback. Our 12-month target price of $25, unchanged, uses relative p-e and earnings before interest taxes depreciation and amortization, or EBITDA, analysis. We believe BellSouth's 4.6% dividend yield adds support.

HCA (HCA) : Maintains 3 STARS (hold)

Analyst: Cameron Lavey

Third quarter earnings per share of 62 cents vs. 47 cents is in line with our estimate. In our opinion, third quarter patient admissions were weak because of recent hurricanes and weakening industry conditions. HCA sees a rise in bad debt and uninsured admissions in 2006, which we view as a significant issue for the company and the industry as a whole. We think HCA shares will be supported by the company's $2.5 billion buyback, but we would not add to positions. Our 2005 earnings per share estimate remains $3.10, and 2006's at $3.30 after 5 cents option expense. Our 12-month target price is $50, 15 times our 2006 estimate and in line with peers.

Partnerre (PRE) : Reiterates 3 STARS (hold)

Analyst: Frank Braden

Third quarter operating loss of $6.36 vs. earnings per share of $1.07 is 14 cents wider than our estimate but 64 cents narrower than the Street's. The operating loss reflects Hurricanes Katrina and Rita, three Asian typhoons, and flooding in India and Central Europe. Parnerre's life segment premiums beat our forecast as net written premiums rose 6%. Invested assets increased 3%, largely on cash flow added to the portfolio. We see better profitability ahead from anticipated hikes in property reinsurance rates in 2006 and 2007. Our 12-month target price remains $70, or 1.55 times our estimate of 2006 tangible book value.

First Energy (FE) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Justin McCann

In light of what we view as First Energy's improved financial strength and earnings outlook, we believe the stock is attractive for total return. Aided by abnormally warm weather, third quarter operating earnings per share of $1.04 vs. 97 cents was 7 cents above our estimate. We are raising our earnings per share estimates for 2005 and 2006 by 5 cents each, to $3.00 and $3.55. First Energy has implemented two dividend increases totaling nearly 15% in 2005, bringing its current yield of 3.6% closer to peer average of 4.2%. We are raising our 12-month target price by $2 to $55, which approximates peer p-e based on our 2006 estimates.

Greater Bay Bancorp (GBBK) : Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Mark Hebeka, CFA

Greater Bay Bancorp subsidiary ABD Insurance & Financial Services says it received a subpoena from the New York Attorney General's office regarding compensation arrangements and marketing practices. At this point we remain cautious, but look for increased expenses related to the matter. We continue to view the local Bay Area economy as recovering, but note increased competition and a difficult yield curve environment. We are lowering our 2005 and 2006 earnings per share estimates to $1.48 and $1.64, from $1.50 and $1.66. Our 12-month target price falls to $22 from $28, about 13.5 times our 2006 earnings per share estimate, a bit below peers.

Grupo Televisa (TV) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Gary McDaniel

Third quarter earnings per share of $1.46 vs. $1.16 is 26 cents above our estimate. Revenue growth exceeded our forecast and operating margins rose in eight of TV's nine segments. With a national election and World Cup in 2006, we expect broadcast revenues to grow 12.5%. We also expect the World Cup to contribute to 18% revenue growth in Sky Mexico. We think Televisa will continue to control expenses and see operating margins rising to 35.7% in 2006 from 33.3% in 2005. We are raising our fourth quarter earnings per share estimate to $1.77 from $1.62 and 2006's to $6.72 from $5.71. Our target price rises to $84 from $68.


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