Markets & Finance

S&P Boosts Whirlpool to Buy


Plus: Analyst opinions on Harley-Davidson, United Parcel Service, and more

From Standard & Poor's Equity ResearchWhirlpool (WHR)

Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Thomas Smith, CFA

Whirlpool plans to report fourth quarter results on Feb. 7 and we continue to expect EPS of $1.62 for the quarter, as well as $6.25 for 2006, and $9.00 for 2007. The company continues to integrate acquired operations, which we think should aid margins ahead. On Jan. 3, it announced the sale of several former Maytag buildings and on Jan. 31 it announced the sale of the Hoover floor-care business for about $107 million in cash. We are raising our 12-month target price to $108 from $95, applying a target p-e of 12 times, in the middle of the stock's historical range, to our 2007 estimate.

Harley-Davidson (HOG)

Maintains 2 STARS (sell)

Analyst: E. Kolb

A recent article in the Wall Street Journal suggests there has been a recent trend of insider selling at Harley and that, in the past, similar trends have resulted in flat performance or a fall in the share price. We have concerns regarding the aging of the company's target customers and a slowdown in sales growth. Furthermore, we believe Harley's current p-e premium to the S&P 500 is more than ample. As such, we are maintaining our 12-month target price of $64 and our sell recommendation, which is based on our discounted cash flow valuation.

United Parcel Service (UPS)

Reiterates 4 STARS (buy)

Analyst: Jim Corridore

UPS announces a deal to buy 27 Boeing (BA) 767-300ER freighters, to be delivered between 2009-2012. UPS goes out of its way to say this order is not related to its review of its Airbus A380 freighter order, which we think is probably true. This is in line with UPS's need to continue to invest in its international package delivery capabilities, where it sees strong growth. However, we think UPS needs to make a decision soon about the A380 in order to remain competitive with FedEx (FDX). Today's news has no impact on our EPS estimates or target price for UPS.

LP Units Of Holly Energy (HEP)

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

Analyst: Stuart Benway, CFA

Holly Energy posts fourth quarter earnings per unit of $0.56 vs. $0.43, ahead of our $0.53 estimate. Total volume of petroleum products through its pipelines and terminals increased 3.9% as the company benefited from an expansion at one of its refineries. Holly Energy continues to seek acquisitions, although we believe its debt levels will likely prevent a major deal. Our estimate for 2007 earnings per unit remains $2.00. However, we are raising our 12-month target price to $46 from $36 using a lower expected yield and a higher value applied for the EBITDA multiple.

National Financial Partners

Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Erik Oja

National Financial Partners will report fourth quarter results on February 14, and we continue to expect operating EPS for the quarter of $0.52 vs. $0.54. For full year 2006, we anticipate operating earnings of $1.50 vs. $1.48. Our forecast of 2006 cash EPS, excluding depreciation, amortization, and impairment charges, is $2.63, and we project revenue growth of 25% in 2006 and 30% in 2007, driven by acquistions. We are maintaining our 12-month target price of $51, based on a 16.3 times multiple on our 2007 cash EPS estimate of $3.14, in line with National Financial Partners's historical average.

Borland Software (BORL)

Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Jim Yin

Our upgrade is based primarily on valuation. The shares have declined about 6% following the announcement and completion of a $175 million Convertible Senior Notes offering. We view the offering as a positive, providing Borland Software with the financial flexibility to implement its growth strategy in application lifecycle management products, and spin off its integrated development environment business. BORL plans to use approximately $30 million of the proceeds to repurchase its stock, or about 7.5% of the shares outstanding. We are keeping our 12-month target price at $6.


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