Markets & Finance

S&P Keeps Buy on Oracle Shares


Plus: A downgrade of Herman Miller, and other analyst actions Tuesday

From Standard & Poor's Equity ResearchOracle (ORCL) : Maintains 5 STARS (strong buy)

Analyst: Zaineb Bokhari

The Redwood City (Calif.)-based software company's share prices are lower in pre-market trading after it announced February quarter results late Monday. Oracle had pro forma earnings per share (EPS) of 19 cents compared to 16 cents in the same period of last year. The results were a penny above our estimate. Oracle's non-Generally Accepted Accounting Principles (GAAP) revenues grew 14% to $3.5 billion, in line with our view despite a negative 4% forex impact. The company's database and Middleware software grew 5%, modestly below our view. Oracle sees secure enterprise search as a driver of future database growth; we look for 11% software growth for this segment in the May quarter. Our fiscal year 2006 (ending May) and fiscal year 2007 EPS estimates stay 79 cents and 87 cents, respectively. Our target price rises by $1 to $16.

Colgate-Palmolive (CL)

Reiterates 5 STARS (strong buy)

Analyst: Howard Choe

Colgate-Palmolive has agreed to acquire a majority interest in the privately held Tom's of Maine, a maker of natural personal care products, for about $100 million. Overall, we view this transaction positively, as we believe it would bolster Colgate-Palmolive's core oral and personal care businesses, increase Colgate-Palmolive's margins, and provide an entry point into the faster-growing natural personal care segment. If approved, the deal should be earnings-neutral in 2006 and accretive thereafter.

Herman Miller (MLHR) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Amy Glynn, CFA

Our downgrade is based on valuation as the shares are trading near our $33 target price. Herman Miller is scheduled to report February quarter results on Mar. 23, and we expect it to announce earnings per share (EPS) of 32 cents vs. 24 cents. We see 10% revenue growth, which represents a deceleration from the November quarter's 19% gain. We think the demand picture for the company's products remains healthy, and Herman Miller is well positioned to grow market share over the long term through new products and new market penetration. But, we believe Herman Miller faces tough revenue comparisons over the next four quarters, which will make it difficult to continue the current pace of growth.

LG Philips LCD (LPL) : Maintains 4 STARS (buy)

Analyst: Colin McArdle

The South Korean liquid crystal display panel company says first quarter prices will be sequentially lower than previously guided. We expect them to fall by 7% to 9%, compared to a prior outlook of 4% to 6%. We believe this wider-than-expected decline will be temporary, as inventories are realigned after a production surge in the second half of 2005. The company also said earnings before interest, taxes, depreciation, and amortization (EBITDA) margins will be wider than forecast, due to stronger-than-expected performance from its newest fabrication plant. Our 2006 earnings per American Depositary Share estimate remains 81 cents. Due to higher peer valuations, we are raising our 12-month target price to $27 from $24.

Logitech International (LOGI) : Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Megan Graham-Hackett

We are cutting our 12-month target price to $36 from $46, based on factors such as our fiscal year 2007 (ending March) earnings per American Depositary Receipt estimate of $1.98. We see higher risk in the company's near-term results, as a number of competitors have announced products aimed at some of the higher-growth categories in Logitech's portfolio. The industry is also facing a seasonally slower period.

Costco Wholesale (COST) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Joseph Agnese

Our downgrade is based on valuation as Costco Wholesale shares approach our new 12-month target price of $60, raised $1 Tuesday. Our fiscal year 2006 (ending August) earnings per share (EPS) estimate remains $2.35. We believe strong sales trends will continue in fiscal year 2006 (ending August), driven by growth of the company's ancillary businesses. Among other things, we believe the company will likely benefit as factors such as improved sales leverage and lower workers compensation offset increased stock option expense and utility costs.


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