Markets & Finance

S&P Upgrades General Mills to Buy


From Standard & Poor's Equity Research

General Mills (GIS) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: R.Joy

Aug-Q EPS of $0.74 (after $0.07 stock option expense) vs. $0.64 is $0.06 above our estimate. Net sales rose a solid 7%, on 4% volume growth, 2% price/mix improvement and 1% currency benefit. We were impressed by strong growth for several key brands, and see new products continuing the trend. We are increasing our FY 07 (May) EPS estimate by $0.05 to $3.10. We believe General Mills is attractive, given its improving margins, strong brand momentum and 2.6% dividend yield. Seeing improved near-term growth profile and EPS visibility, we are raising our target price by $9, to $61.

Westamerica Bancorporation (WABC) : Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: S. Plesser

Westamerica Bancorporation's shares have risen about 7% over the past month, and are currently selling above our 12-month target price of $47. Although we continue to believe that the company's conservative lending practice is a plus in today's difficult interest rate environment, we do not see significant earning asset growth over the next two quarters. We are increasing our '06 EPS estimate by $0.02 to $3.25. But we are maintaining our target price, which applies 14.7X multiple to our 12-month forward EPS estimate of $3.19, a discount to peers supported, in our view, by Westamerica Bancorporation's growth prospects.

FedEx (FDX): Reiterates 5 STARS (strong buy)

Analyst: J.Corridore

Posts Aug.-Q EPS of $1.53 vs. $1.25, $0.01 better than we expected. Revenue rose 11%, in line with our model, while operating margin was slightly ahead. FDX guided for FY 07 (May) EPS of $6.30-$6.65, reflecting a $0.20 charge for costs related to a new pilot contract. We are lowering our FY 07 EPS estimate to $6.65 from $6.80, and starting FY 08 at $7.60. Our 12-mo. target price of $143 values the shares at 21.5X and 19X our FY 07 and FY 08 EPS estimates, respectively, towards the low-end of FDX's historical P/E range, reflecting an expected slowing of the U.S. economy.

Sony (SNE) : Reiterates 2 STARS (sell)

Analyst: JYang, TGraves-CFA

In line with our expectation, Sony plans to spend JPY11 bln on a new LCD panel plant in Slovakia, counting on continued demand growth for LCD TVs in Europe. We are wary that returns from the new facility may be dampened by price pressures given rising competition in the LCD space. Also, Toshiba's recall of 340,000 Sony-made laptop batteries may add to an expected charge of more than JPY20-30 bln to cover costs related to previously announced Sony-battery recalls, higher than previously announced by Sony. We see continued earnings uncertainty and lack of positive news drivers.

Watts Water Technologies (WTS) : Starts coverage with a 4 STARS (buy)

Analyst: S. Scharf

We believe this global provider of plumbing and heating products will see sequential quarterly improvement as price hikes offset high, albeit declining, raw material costs, while the mix shifts towards higher-margin commercial products. We think solid demand in North America and Europe, plus acquisitions, will add to growth. Low-cost production in China and synergies should also aid margins. With WTS shares at nearly a 20% discount to our DCF-based intrinsic value, and a below-peer P/E of 15X our $2.15 '06 estimate, we blend metrics to arrive at our 12-month target price of $38.

A.G. Edwards (AGE) : Reiterates 3 STARS (hold)

Analyst: F. Braden

Aug-Q EPS of $0.86 vs. $0.61 is a penny below our estimate. Results were hurt by lower commission revenue, partly offset by lower non-compensation expense than we expected. The decline in commission revenue was largely from decreased investor activity in mutual funds and equities. Compensation and benefit expenses were higher on increased commissions and incentives. We are leaving our FY 07 (Feb.) EPS estimate at $3.75, but raising FY 08's to $4.27 from $4.00 based on our improving profitability outlook. Our 12-month target price rises $4 to $57, 13.3X our FY 08 estimate.


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