Markets & Finance

S&P Downgrades McAfee Shares


Plus: Analyst opinions on Alcatel-Lucent and Timberland

From Standard & Poor's Equity ResearchMcAfee (MFE)

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

Analyst: Jim Yin

McAfee posts fourth quarter results, preliminary because of an ongoing options review. Operating EPS of 29 cents vs. 27 cents exceeds our 24 cents estimate. Total revenues rose 21% to $305 million, but billings increased just 5.1% to $388 million, and McAfee provides guidance for 2007 revenue growth of 5%-12%. We are trimming our 2007 revenue growth estimate to 10% from 14% and our EPS estimate to $1.11 from $1.16. We are keeping our 12-month target price at $33, but see upside potential limited by cautious guidance and ongoing options review. /J.Yin

Alcatel-Lucent (ALU)

Maintains 2 STARS (sell)

Analyst: C. Van der Elst

The company's fourth quarter sales and earnings before interest and taxes (EBIT) are below our projection, with EBIT negatively impacted by a large restructuring charge. The company announced an expansion in its headcount reduction program by 39% to 12,500. In addition to increasing the targeted savings it expects, Alcatel-Lucent confirmed our concerns and pushed back the timeline for achievement. The company expects a further decline in revenues in first quarter 2007, but for full-year 2007 it sees mid-single digit revenue growth, consistent with the industry. We will provide an update to our outlook following Alcatel's Feb. 9 conference call.

Timberland (TBL)

Downgrades to 1 STAR (strong sell) from 2 STARS (sell)

Analyst: Mark Basham

Fourth quarter EPS of 61 cents, vs. 71 cents, is 2 cents above our 59-cent estimate as favorable foreign exchange effects were larger than we forecast. Timberland warns that 1st half 2007 bottom line will be $40 million lower than 2006's $22.5 million operating income. Though the company expects improvement in the second half, we see more downside risk. Accounts receivable days outstanding ballooned to 74 days at the end of 2006, and we think inventories are still too high. We also think departures of COO and CFO in March pose risk. We are cutting our 2007 EPS estimate by 25 cents to $1.45, and our 12-month target price by $2 to $22, believing Timberland merits a discount p-e to the S&P MidCap 400's 17 times.


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