Markets & Finance

S&P Ups Lehman Brothers Shares to Buy from Hold


Lehman Brothers (LEH) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Robert Hansen, CFA

We expect Lehman Brothers to post impressive February quarter results, with strength in its trading, equity underwriting, asset management and merger advisory businesses. We think potentially wider credit spreads and higher interest rates could hurt results in the second half of fiscal year 2006 (ending November), but we believe Lehman Brothers can grow its business franchise given its diversification. We are increasing our fiscal year 2006 earnings per share (EPS) estimate to $12.25 from $11.00. We are raising our target price to $160 from $135, or to about 13 times our fiscal year 2006 EPS estimate. We like Lehman Brothers's global competitive position, and we view its valuation as attractive.

Bear Stearns (BSC) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Robert Hansen, CFA

We expect Bear Stearns to post strong February quarter results aided by higher trading, investment banking, and asset management revenues. But we think rising interest rates and potentially wider credit spreads could hurt its mortgage franchise in the second half of fiscal year 2006 (ending November). We are maintaining our fiscal year 2006 EPS estimate of $11.00. We are trimming our 12-month target price to $140 from $150. We do not expect Bear Stearns to grow as fast as some of its larger peers, and view the discount on its shares relative to peers as appropriate. Given the 15% price rise thus far in 2006, we would hold the shares.

China Petroleum & Chemical (SNP) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Lorraine Tan

We are upgrading our opinion mainly on valuation, following the recent decline in China Petroleum & Chemical's share price. We also see an improved mid-term outlook for the Beijing oil and gas company's refining operations. Given that the company is a net user of crude oil, we think the recent declines in oil prices are relatively more benign to its bottom line than to that of its Chinese peer CNOOC (CEO). This could enable China Petroleum & Chemical to see a recovery in margins in its refining and petrochemical activities. Our 12-month target price rises by $9 to $64.

Human Genome Sciences (HGSI) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Frank DiLorenzo, CFA

The biopharmaceutical company on Tuesday released Phase II data results from a test of the safety, tolerability and efficacy of the hepatitis C treatment Albuferon(TM) (albumin-interferon alpha 2b) in combination with ribavirin. We think the data show a positive trend and we have more confidence the drug could be successful. Human Genome Sciences may start a Phase III trial by year-end 2006, but we think this deadline could be pushed out slightly. We also think a partner in the research would make sense, considering the global reach and entrenchment of Human Genome Sciences' competitors Roche and Schering-Plough (SGP). We are raising our target price by $1 to $16.

Amdocs (DOX) : Cuts to 3 STARS (hold) from 5 STARS (strong buy)

Analyst: Todd Rosenbluth

We see Amdocs benefiting from an increased focus by communications providers on service bundling and consolidation. Last week Amdocs' major customer AT&T (T) announced plans to acquire BellSouth (BLS,) pending necessary approvals. We think this is likely to lead to increased demand for Amdocs' services. However, we believe it is too early to quantify the long-term potential revenue and earnings per share (EPS) impact that the deal could have on Amdocs. With the company's share prices up 28% in 2006, nearing our 12-month target price of $37, we believe our new opinion is warranted by risk-reward considerations.

Healthcare Realty Trust (HR) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Robert McMillan

After recent gains, the shares of Healthcare Realty Trust have reached our $38 target price, which we are maintaining. We expect operating trends for this Real Estate Investment Trust to continue to improve, driven by generally improving operating results for its tenants. Healthy demand for healthcare service, office and retail space should result in good occupancy levels and rent growth. We think the company's shares are fairly valued and would not add to positions. We are keeping our 2006 per-share funds from operations estimate at $2.56. HR's dividend is currently yielding 7.0%.


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