Markets & Finance

S&P Boosts Lockheed Martin, PetroChina


From Standard & Poor's Equity Research

Lockheed Martin (LMT) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Richard Tortoriello

We see a number of catalysts for Lockheed Martin shares in what we view as an increasingly defensive stock market environment. We see strong potential for the F-35 Joint Strike Fighter program, on which Lockheed Martin is prime contractor, and we look for improving profit margins, return on capital, and free cash flow, as well as ongoing share repurchases. We are raising our 2006 earnings per share (EPS) estimate to $4.75 from $4.45, and 2007's to $5.00 from $4.75. Our 12-month target price increases by $13 to $90, or to 18 times our 2007 estimate.

PetroChina (PTR) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Lorraine Tan

Our upgrade is based on valuation. We believe the medium-term outlook for PetroChina is positive on the back of continued robust China demand growth for oil, improved refining margins, and continued acquisitions. We are raising our 2006 earnings per ADR estimate by $2.37 to $12.07, 2007's by $1.97 to $12.33, and see 2008 at $12.20. We are raising our 12-month target price by $13 to $131 per ADR.

VeriSign (VRSN) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Scott Kessler

We have grown increasingly concerned about VeriSign's potential exposure to large telecom customers, aggressive acquisition activity, matters related to potential options back-dating and associated disclosures, and premium prices. We think recent macroeconomic and geopolitical uncertainties, coupled with these issues, makes it less likely that VeriSign shares will outperform over the next 12 months. We are lowering our 12-month target price to $24 from $27.

Citigroup (C) : Reiterates 5 STARS (strong buy)

Analyst: Mark Hebeka, CFA

Citigroup posts second quarter operating earnings per share (EPS) of $1.05 vs. 97 cents, below our $1.08 estimate, mainly due to weak alternative investment results and continued margin pressure on U.S. consumer banking operations. This is attributable to a difficult interest rate environment. We view distribution and accelerated organic growth as keys to Citigroup's future earnings growth and we are encouraged by ongoing de novo activity, with 270 branches opened during the quarter. Our 2006 and our 2007 operating EPS estimates fall to $4.34 and $4.67, from $4.36 and $4.68, respectively, but our 12-month target price remains $55.

Alltel (AT) : Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth

Alltel is set to close its local wireline operations merger with Valor Communications Group (VCG) this week. Alltel shareholders will receive 1.04 shares of the newly named Winstream (WIN) for each Alltel share they own. Alltel, which has grown through acquisitions of rural wireless assets in the past 18 months, is less dependent on wireline operations (33% of its second quarter earnings before interest taxes depreciation and amortization) than in the past, in our view. We expect Alltel to buy back some of its shares following the deal. Our second quarter EPS estimate for Alltel of 87 cents on $2.6 billion of revenues includes the wireline assets.

W.W. Grainger (GWW) : Reiterates 5 STARS (strong buy)

Analyst: Stewart Scharf

Second quarter EPS of $1.02 vs. 89 cents is 9 cents above our estimate. Sales rose 8%, driven by growth in branch-based business as W.W. Grainger continues its market expansion program. We are projecting wider gross margins on supply chain cost savings and a better product mix. With its cash flow, the company now plans to buy back $200 million to $300 million of stock in 2006. Our 12-month target price remains $94.


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