Markets & Finance

S&P Ups Sony to Sell


From Standard & Poor's Equity Research

Sony (SNE) : Ups to 2 STARS (sell) from 1 STAR (strong sell)

Analyst: John Yang

Our action is based on valuation, since the current price of Sony shares is near our 12-month target price of $44. After management's recent fiscal year 2007 (ending March) guidance, we continue to believe that any potential upside in share price would be limited by a lack of visibility in Sony's games division. We are maintaining our fiscal year 2007 (ending March) and fiscal year 2008 earnings per share (EPS) estimates of 72 cents and 78 cents, respectively.

Telefonica (TEF) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Cristina Perea

At its recent investor day, Telefonica targeted a four-year compounded annual growth rate of 10% to 14% for revenue and earnings before interest taxes depreciation and amortization (EBITDA.) We view subscriber take-up rates for new mobile data and broadband services as favorable, and believe the company can maintain its above-industry-average growth. We think a commitment to financial discipline following the conclusion of an aggressive acquisition strategy, together with an increasing shareholder distribution policy, with dividends forecasted to double by 2009, lowers Telefonica's risk profile. Our 12-month target price remains $54.

Norsk Hydro (NHY) : Ups to 4 STARS (buy) from 2 STARS (sell)

Analyst: C. Tiscareno

Our action follows a recent market correction, which the company took advantage of on May 24 by repurchasing 894,000 shares as part of its May 9 authorized buy-back program of 40 million shares (22.6 million from the market, 17.5 million from the Norwegian Estate). We are raising our estimate of 2006 operating earnings per American Depositary Receipt by 14 cents to $2.82, and 2007s by 16 cents to $2.65, and 2008s by 11 cents to $2.23. We are also boosting our 12-month target price by $1 to $31 per ADR. The new target reflects the company's 5-for-1 split, effective for ADRs from May 25.

Huaneng Power International (HNP) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: D.Huang

While Huaneng Power International's share prices have recently fallen sharply, we are maintaining our 12-month target price of $31. We think a tariff increment is likely, compensating power producers for the increase in coal costs, higher transport costs, and the drop in coal quality since May 2005. We see downside risk from falling utilization offset by these potential tariff increments and stable unit fuel costs. Our estimates for 2006 and 2007 earnings per ADS remain at $1.89 and $2.09.

Starwood Hotels & Resorts (HOT) : Reiterates 3 STARS (hold)

Analyst: Thomas Graves, CFA

We have a generally favorable view of the company's's recent asset divestiture, and the likelihood that the company's business mix will be weighted more toward managing and franchising hotels. Also, we expect future stock repurchase. Before special items, we are keeping our 2006 EPS estimate at $2.30, and 2007's at $2.55. Transition costs related to Starwood Hotel's Le Meridien acquisition are among the excluded items. We are raising our 12-month target price to $62, from $58.

Tribune Company (TRB) : Maintains 4 STARS (buy)

Analyst: James Peters, CFA

The Tribune Company sets a plan to repurchase up to 75 million shares and about 25% of outstanding shares, subject to securing up to $2.4 billion of financing. The expected repurchase includes up to 53 million shares via a modified dutch auction self-tender at $28 to $32.50, plus 10 million from the company's principal shareholder and up to 12 million in the open market. Management is not selling any shares. We expect the repurchase to be accretive, and think the Tribune will prioritize debt paydown over next few years. We are raising our 2006 EPS estimate to $2.16 from $2.11 and our 12-month target price to $35 from $34.


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