Markets & Finance

S&P Downgrades Allianz Shares


From Standard & Poor's Equity Research

Allianz (AZ) : Cuts to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Derek Chambers

Despite Allianz's reduced exposure to the equity market over the past three years, we think the shares are subject to larger swings than the overall market, as they recently rebounded 19% compared with a 10% recovery in the broader market. We still see potential upside, though to a lesser extent, and thus our downgrade to a buy. We are raising our 2006 earnings per American Depositary Shares estimate to $1.77 from $1.58, but we're keeping 2007's at $1.71. Our 12-month target price remains $19 based on our discounted cash flow model, which assumes a 10% cost of equity and medium-term growth rate of 3% per annum.

McAfee (MFE) : Reiterates 4 STARS (buy)

Analyst: Clyde Montevirgen

The shares are down this morning as McAfee announces it has received a grand jury subpoena from the U.S. Attorney's Office for the Northern District of California regarding the termination of its former general counsel, Kent Roberts, his option-related activities, and McAfee's options investigation. This subpoena comes after the company's previous announcement of an internal probe. We continue to think that related risks are already built into McAfee's current share price and that the company's growth prospects will aid fundamentals in the 2nd half. Our 12-month target price remains $28.

Priceline.com (PCLN) : Reiterates 3 STARS (hold)

Analyst: Scott Kessler

After reviewing our models, we are raising our 12-month target price on the shares to $39 from $34. Priceline.com has executed well in recent quarters, better than competitors. We also believe that Priceline.com's value orientation, and shrewd European acquisitions in recent years have aided results. For second half 2006, we foresee a potential weakening of consumer travel demand and greater competition from peers.

Lowe's (LOW) : Reiterates 4 STARS (buy)

Analyst: Michael Souers

July quarter earnings per share (EPS) of 60 cents vs. 52 cents is 2 cents shy of our estimate. Sales growth of 12%, including a comp-store rise of 3.3%, also missed our projections slightly. While we expect the slowdown in the housing market to limit comp-store growth and slightly de-leverage expenses in the back half of the year, we continue to believe the risk/reward balance is favorable on Lowe's shares, now trading at a price-to-earnings-to-growth ratio of under 0.8 times. We are trimming our fiscal year 2007 (ending Jan.) and fiscal year 2008 EPS estimates to $2.04 and $2.29 from $2.11 and $2.40. Our 12-month target price falls by $3 to $37.

KongZhong (KONG) : Starts at 3 STARS (hold)

Analyst: Clyde Montevirgen

We see wireless value-added services growing in KongZhong's market at double-digit rates in the long term and expect the company to benefit from a market-leading position within this wireless content segment. However, our optimism is tempered by our view of an unstable regulatory environment and undefined revenue infrastructure with KongZhong's major customer, which we think pose risks to the company's fundamental health and can cause major volatility in share prices. We see 2006 earnings per ADS at 65 cents and 2007's at 60 cents. Our 12-month target price is $9.

Dynamic Materials (BOOM) : Starts at 3 STARS (hold)

Analyst: Richard Tortoriello

We believe favorable trends in global commodities production has driven strong demand for Dynamic Materials's explosion-welded clad plates, used in high temperature, pressure, and corrosion environments. But we expect sales growth to slow from its recent 40% plus rates, and see earnings per share of $1.46 in 2006, and project $1.61 in 2007. Our 12-month target price of $35 is based on a multiple of 22 times our 2007 EPS estimate.


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