Markets & Finance

S&P Keeps Research in Motion at Sell


Plus: Analyst opinions on Motorola, Telephone & Data Systems, and U.S. Cellular

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

Maintains 2 STARS (sell)

Analyst: Kenneth Leon, CPA

RIMM announces today that it has made changes in its executive team and board of directors following an internal review of stock option grants by the company. While the accounting adjustments will not have an impact on prospective operating performance, we believe governance remains an important issue. RIMM is separating the roles of chairman and CEO by selecting an outside director as chairman. We see the creation of a president and COO role as a positive for running the business. But with the shares priced above peers at 30 times our fiscal 2008 (ending February) EPS estimate, our opinion is sell.

Motorola (MOT)

Maintains 4 STARS (buy)

Analyst: Kenneth Leon, CPA

According to an unconfirmed Wall Street Journal report, there has been speculation that Motorola or Nokia (NOK) may acquire Palm Inc. (PALM) to bolster their competitive position in the wireless enterprise market against Research in Motion. While Palm is a strong wireless device maker in the enterprise market, we believe the handset challenges for Motorola are the design and commercial launch of mobile devices for the mass consumer market. Motorola already competes against RIMM with the Q phone; we expect the company to introduce new phones for the mass market this coming summer.

Telephone & Data Systems (TDS)

Maintains 2 STARS (sell)

U.S. Cellular (USM)

Maintains 2 STARS (sell)

Amnalyst: Todd Rosenbluth

TDS announces that it no longer seeks to own full control of its majority-owned U.S. Cellular due to, in our view, an overvaluation of USM. TDS currently owns 81% of USM shares and we think TDS shares have risen in anticipation of a deal. We believe TDS is progressing well, despite accounting issues, and we are raising our 2007 EPS estimate by 38 cents to $2.51, on higher wireless EBITDA expectations, but continue to see wireline growth challenges. We are raising our target price by $2 to $50, to reflect a peer-average enterprise value/EBITDA multiple of 5.5 times.

As for USM, we believe it is progressing well as a standalone company, despite accounting issues, and we are increasing our 2007 EPS estimate by 19 cents to $2.43 on higher EBITDA expectations. We are raising our 12-month target price by $5 to $65, to reflect peer-average enterprise value/EBITDA multiple of 7 times.


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