Markets & Finance

S&P Cuts Golden West Financial to Hold


From Standard & Poor's Equity Research

Golden West Financial (GDW): Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Mark Hebeka-CFA

Golden West Financial announces it has agreed to be acquired by Wachovia (WB) for about $25.5 billion in stock and cash, pending approvals. The deal represents an approximate 15% premium to Golden West Financial's closing price on Friday, and is expected to close in the fourth quarter. We view the deal favorably for Golden West Financial shareholders, as it offers a healthy premium and gives them a piece of a fundamentally strong player with diverse business lines. We are increasing our 12-month target price to $82 from $77, in line with the terms of the proposed deal.

Thermo Electron (TMO) : Ups to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Jeffrey Loo, CFA

We are encouraged by today's conference call about Thermo Electron's $10.6 billion deal to buy Fisher Scientific (FSH), subject to needed approvals. We think the planned deal makes sense and we see its integration resulting in the largest array of comprehensive life science instrument and consumable products. In our view, the companies' extensive global sales and distribution network will drive cost and revenue synergies, enabling meaningful margin expansion. We see cash flow of $1 billion-plus in 2007 and pro forma earnings per share (EPS) of $2.30. We are raising our target price by $8 to $52.

America Movil (AMX) : Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Kenneth Leon, CPA

After further review of the Mexican telecom's first quarter results, we think revenue growth for Latin America's largest wireless operator will begin to slow, depending more on smaller markets for subscriber adds. We believe Brazil and Mexico, its two largest markets, are displaying pricing pressure and a slowdown in net adds compared to its other markets. Colombia had the most first quarter net subscriber adds. We are raising our 2006 estimate of earnings per ADS to $1.80 from $1.65 and 2007's to $2.05 from $2.00. Based on our 2007 earnings before interest taxes depreciation and amortization (EBITDA) estimate, our 12-month target price remains $36.

Emmis Communications (EMMS) : Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Loran Braverman, CFA

Emmis Communications announces that the CEO and controlling shareholder Jeffrey Smulyan made a non-binding proposal to buy the company's outstanding shares at $15.25 cash per share. Including options exercisable within 60 days, Mr. Smulyan controls 66.7% of the voting power of Emmis. We are lowering our recommendation on its shares, since they are currently trading above our 12-month target price of $16, and since we do not see a sufficient likelihood of another bid. Emmis also announced that it has sold two broadcast properties for $295 million.

Yahoo (YHOO): Reiterates 4 STARS (buy)

Analyst: Scott Kessler

Yahoo outlines plans for a new search advertising platform, which the company indicates should be deployed beginning in the third quarter. This timetable is modestly ahead of our expectations, and could enable Yahoo to benefit during the seasonally important fourth quarter. The new system will emphasize improvements for advertisers around ease of use, forecasting, and testing and targeting. A quality-based ranking model will also be employed. We think these enhancements will make Yahoo's offering more competitive with Google's (GOOG). Overall, we believe this news bodes well for Yahoo.

Micron Technology (MU): Reiterates 4 STARS (buy)

Analyst: Thomas Smith, CFA

Micron Technology forms a photomask joint venture with Photronics (PLAB). Micron Technology will be 50.01% owner of the venture, MP Mask Technology, and contribute its mask operations in Boise, ID. MP Mask plans to develop a new high-volume mask plant in Boise. We view this deal as a plus for Micron Technology, since it brings capital and knowhow from Photronics as Micron Technology seeks to broaden its product line in DRAM, NAND flash memory, and image sensors. Based on its collaboration with Intel (INTC) and now Photronics, we believe Micron Technology is positioning itself well to be a big player in a consolidating memory industry.


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