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Plus: Analyst opinions on UnitedHealth Group and Hitachi Ltd.
From Standard & Poor's Equity ResearchHovnanian Enterprises (HOV)
Maintains 2 STARS (sell)
Analyst: William Mack, CFA
Hovnanian's preliminary October sales results include likely land charges of $300 million (almost $5 per share pretax). Net of these charges, we are lowering our October-quarter estimate to a loss of $1.87 per share from EPS of $2.68, while our fiscal 2007 (ending October) EPS estimate falls to $3.50 from $6.50 on what we see as even lower sales volumes and margins. We think these write-downs, unprecedented for Hovnanian in magnitude, reflect huge inventories of existing homes and poorly timed land purchases by the company. We are lowering our target price, still based on a 20% discount to our reduced fiscal 2006 book value estimate, to $22 from $24.
UnitedHealth Group (UNH)
Maintains 5 STARS (strong buy)
Analyst: Phillip Seligman
We view favorably the company's moves to strengthen corporate governance, including improved internal controls and stricter requirements for "independent" directors, and President, COO, and pending CEO Stephen Hemsley's voluntary removal of his benefits from past option grants. UnitedHealth noted that the stock option charge it previously estimated it would have to take now looks to be greater. However, this issue, like the governance issues, does not affect our positive picture of the company's operating performance and growth prospects.
Hitachi Ltd. (HIT)
Reiterates 1 STARS (strong sell) on ADRs
Analyst: John Yang
On Oct. 31, Hitachi reported a second-quarter net loss per ADR of $1.43, vs. profit per ADR of 34 cents one year earlier, driven by special one-time charges from the October, 2006, announcement of liability-related to nuclear power turbine accidents. We see future power and industrial systems orders being impacted from the associated reputational risk. Our fiscal 2007 (ending March) estimate remains a net loss per ADR of $1.41, and we are lowering our fiscal 2008 estimate to a net loss per ADR of 56 cents from a profit per ADR of $1.32. Our target price of $51 is based on a historical blend of price/book value of 0.8 times and enterprise value/EBITDA of 7.4 times.