From Standard & Poor's Equity ResearchGoogle (GOOG
): Upgrades Cl. A shares to 4 STARS (buy) from 3 STARS (hold)
Analyst: Scott Kessler
The shares are down 12% over the past month, and we think this decline offers an appealing buying opportunity. Google continues to gain share in the Internet search market, and we believe it will benefit in the fourth quarter from the delayed release of Yahoo's (YHOO
) search upgrade. Google also announces a test of ad-supported video-content distribution to affiliates, with Viacom's (VIA.B
) MTV. We view Google as well positioned to become a leader in video advertising by combining aspects of Google Video and AdSense. Our 12-month target remains $435, based on peer and discounted cash-flow analyses.
AES Corp. (AES
): Downgrades to 3 STARS (hold) from 5 STARS (strong buy)
Analyst: Kenneth Leon, CPA
AES posts second quarter EPS of 31 cents, vs. 13 cents, before special items, 16 cents above our estimate. The quarter's 15% revenue growth is a result of higher commodity prices in all segments and higher volumes in the contract generation unit. Margins widened from a
year ago on better cost controls at AES's Brazilian division. We are raising our 2006 EPS estimate to $1.05 from $1.02 and 2007's to $1.20
from $1.19. Based on p-e of 18.3 times our 2007 EPS estimate, near peers, we maintain our 12-month target price of $22. We would not add to
positions with just 7% upside now to our target price.
SunTrust Banks (STI
): Downgrades to 4 STARS (buy) from 5 STARS (strong buy)
Analyst: Christopher Muir
The downgrade is based on valuation. SunTrust shares have risen 6.0% since June 30, compared with a 4.6% rise in the S&P Regional Banks index. We continue to look for strong loan and non-interest income growth, and we expect that merger savings will help to partly offset the expensing of stock options during 2006. In our view, credit quality remains strong and we see a modest increase in loan loss provisions during 2006. With a 3.0% dividend yield, we continue to see the shares as attractive. Our 2006 and 2007 EPS estimates remain $6.02 and $6.77, respectively, and our 12-month target price stays $88.
Amkor Technology (AMKR
): Upgrades to 3 STARS (hold) from 2 STARS (sell)
Analyst: David Kaplan
The shares have fallen about 50% in recent months, in part on indications of a period of industry weakness ahead, as well as on news of an internal investigation into stock option practices. Amkor is now priced at 6 times our 2006 operating EPS estimate, 7.3 times our 2007 EPS estimate, and just under 0.5 times our 2006 sales estimate, all at discount levels to peers. We think the discount reflects high debt levels, book value per share of only $1.36, and a debt-to-equity ratio of 10 times. Applying a smaller peer discount, we are raising our 12-month target price $1, to $7.