Markets & Finance

S&P Cuts Research in Motion to Sell


Plus: Analyst opinions on Micron Technology and DirecTV Group

From Standard & Poor's Equity ResearchResearch in Motion (RIMM)

Downgrades to 2 STARS (sell) from 3 STARS (hold)

Analyst: Kenneth Leon, CPA

The downgrade is based on valuation. The company's November-quarter EPS of 93 cents, vs. 71 cents one year earlier, before special items, is 3 cents above our estimate. Sales rose 49% with 875,000 BlackBerry subscribers added in the quarter. RIM sees 950,000-970,000 in the February quarter, and sales growth of 60%-67% from a year ago. November-quarter gross margin narrowed to 53%, 100 basis points below the previous quarter, we believe on lower prices for the new Pearl. We are raising our fiscal 2007 (ending February) and fiscal 2008 EPS estimates to $3.30 and $4.55, from $3.25 and $4.35. While upping our target price $10 to $120, a premium-to-peers 26.4 times fiscal 2008 estimate, we think more upside may be challenging against added competition.

Micron Technology (MU)

Reiterates 4 STARS (buy)

Analyst: C. Montevirgen

November-quarter EPS of 24 cents, vs. 8 cents one year earlier, is in line with our estimate. Revenues advanced 15% sequentially, driven by demand from PC and wireless end markets. DRAM pricing helped widen gross margin and profitability. Although we are concerned about memory pricing, we expect Micron's NAND and image sensor business growth to help alleviate margin variability from volatile DRAM prices. We are reducing our fiscal 2007 (ending August) EPS estimate by 11 cents, to 72 cents, to reflect our cautious DRAM pricing outlook. But our 12-month target price remains $18 on a higher price-to-sales multiple as Micron's sales diversify.

DirecTV Group (DTV)

Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Liberty Media (LINTA) will acquire News Corp.'s (NWS) 38.4% controlling stake in DirecTV in an $11 billion swap. The planned deal is expected to close by the second half of 2007, pending needed approvals. While we saw DirecTV reach key operating and financial milestones in three years under News Corp.'s aggressive management style, we expect the company to stay the course in launching of advanced video services as Liberty plans to retain DirecTV president and CEO Chase Carey. Still, under any ownership scenario, we think combating increased competition from cable's bundled offerings remains key challenge for DirecTV.

News Corp. (NWS)

Maintains 4 STARS (buy)

Analyst: Tuna Amobi, CPA and CFA

As had been recently speculated, News Corp. will swap its 38.4% DirecTV stake, plus three regional sports nets and $550 million in cash, for Liberty Media's entire 16.3% stake in News Corp. While wary of potential loss of some vertical integration leverage as News Corp. relinquishes a key asset, we expect the lifting of poison pill overhang upon the likely closing of an $11 billion deal by the second half of 2007, subject to approvals. News Corp. sees immediate EPS accretion on a tax-free deal, which we think equates to a very large stock buyback. News Corp. also plans to resume a previous $6 billion plan.

Micron Technology (MU)

Reiterates 4 STARS (buy)

Analyst: Clyde Montevirgen

Nov. quarter EPS of $0.24 vs. $0.08 is in line with our estimate. Revenues advanced 15% sequentially, driven by demand from PC and wireless end markets. DRAM pricing helped widen gross margin and profitability. Although we are concerned about memory pricing, we expect Micron Technology's NAND and image sensor business growth to help alleviate margin variability from volatile DRAM prices. We are reducing our fiscal year 2007 (Aug.) EPS estimate by $0.11, to $0.72, to reflect our cautious DRAM pricing outlook. But our 12-month target price remains $18 on a higher price-to-sales multiple as Micron Technology sales diversify.

Pinnacle Airlines (PNCL)

Reiterates 2 STARS (sell)

Analyst: Jim Corridore

Shares are up sharply today, as Pinnacle Airlines reaches a new agreement with Northwest Airlines. Pinnacle Airlines will continue to fly its existing fleet with Northwest, take some additional planes, and get the right to fly for others. Northwest will give Pinnacle Airlines $377.5 million to resolve unsecured claims. While this agreement is better than we expected, Pinnacle Airlines will also lower its guaranteed margin from 10% to 8%. We think the shares have overreacted to this news and we would sell into today's rally. We are raising our 2007 EPS estimate to $1.90 from $1.70, and our 12-month target price to $13 from $7.


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