Plus: Analysts' comments on Dell, Equifax, Health Care Property, and more
From Standard & Poor's Equity ResearchNetwork Appliance (NTAP): Upgrades to 4 STARS (buy) from 3 STARS (hold)
Analyst: Jawahar Hingorani
January-quarter earnings per share of 17 cemts. vs. 21 cents, is in line with our estimate. Network Appliance grew faster than the overall storage market in terms of capacity shipped, as well as revenue. We see continued market-share expansion for Network Appliance, as it grows its foothold in the enterprise market. We think the acquisition of Topio, completed in December 2006, will create additional opportunities in fiscal year 2008 (April). We are raising our 12-month target price to $47, 48 times our fiscal year 2008 EPS estimate of 99 cents, below historic averages. In our view, Network Appliance continues to demonstrate superior growth in the burgeoning storage space.
Dell Inc. (DELL): Reiterates 3 STARS (hold)
Analyst: Richard Stice, CFA
Dell names former Solectron CEO Michael Cannon as Dell's president of global operations, effective Feb. 26. We believe this hiring will be beneficial to Dell, given Cannon's level of overall experience. Moreover, we think the move to bring in someone from outside the organization may help to expedite necessary changes. Although we are encouraged by the new leadership team, we believe much uncertainty remains, given recent market-share erosion and an ongoing formal SEC investigation. We are maintaining our 12-month target price of $28.
Equifax Inc. (EFX): Maintains 3 STARS (hold)
Analyst: Zaineb Bokhari
Equifax agrees to acquire TALX Corp. (TALX), a provider of employment verification and human resources-related services for about $1.4 billion, subject to approvals. The deal is expected to close by late second quarter or early third quarter. TALX has a revenue growth profile we view as attractive. Its fiscal year 2006 (ended March) revenue rose 31%, aided by acquisitions, with organic growth it says was in the mid- to high-teens. Equifax expects the deal will raise its annual revenue growth to 8%-11% from 7%-10% and add to cash EPS by 2008. For now, we are leaving our EPS estimates and 12-month target price of $42 unchanged.
Health Care Property Investors (HCP): Maintains 3 STARS (hold)
Analyst: Jason Willey
HCP made an unsolicited C$18 per share offer for Sunrise Senior Living REIT, which values the Canadian REIT's equity at C$1.4 billion. Sunrise has been in the process of being acquired by Ventas (VTR) at C$15 per share, and HCP's offer terms mirror those of VTR's, except with the 20% premium. We view the REIT's portfolio of senior living facilities as high quality, and believe the bid, including C$1.1 billion of assumed debt, implies a sub-6% cap rate, at the low-end of recent deals. We view HCP's proposal as compelling given its premium bid and its track record completing large acquisitions.
Lihir Gold (LIHR) : Cuts to 2 STARS (sell) from 3 STARS (hold)
Analyst: Leo Larkin
Our opinion change is based on relative valuation. Given our more optimistic outlook for Lihir Gold's production and costs, we are raising our 2007 earnings per ADS estimate to $1.05 from $0.85, and also increasing our 12-month target price to $24 from $23. We continue to have a favorable long-term view of Lihir Gold, based on our expectations for a rising gold price and the expansion of reserves and production at existing operations. But with the ADSs recently selling at a premium, compared to Lihir Gold's much larger peers, we believe the ADSs are overvalued.
Petroleo Brasilerio (PBR) : Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Tina Vital
Petrobras posts fourth quarter net earnings of R$5.20 billion vs. R$8.14 billion. Results missed our estimate by R$1.71 billion, reflecting higher expenses than we forecast. Oil and gas production rose 3.6% but were below our expectations on lower-than-expected international volumes; we are projecting almost 4% growth in 2007. We are cutting our 2007 earnings per ADS estimate by $3.61 to $10.04 and 2008's by $2.41 to $12.31. Blending our relative valuations, we are trimming our 12-month target price by $4 to $100, on an estimated enterprise value of 5.6 times our 2007 EBITDA estimate, above peers.