Markets & Finance

S&P Boosts Target on Baidu.com


Plus Analyst opinions on Genworth Financial and American Home Mortgage

From Standard & Poor's Equity ResearchBaidu.com (BIDU)

Reiterates 3 STARS (hold) on American Depositary Shares

Analyst: Scott Kessler

Baidu.com posts first quarter EPS of 32 cents vs. 12 cents, in line with our forecast. Revenues rose 103%, reflecting a strong market for online search advertising in China and marketshare gains. However, gross margins continue to trend lower, owing to the growth of Baidu.com's network and its partners. R&D expense rose from the fourht quarter, as the company builds its Japanese offering. We are lowering our 2007 EPS estimate to $1.69 from $1.78, and setting 2008's at $2.44. Based on revised peer analysis, we are raising our 12-month target price to $137 from $128, accounting for the company's competitive positioning and growth profile.

Genworth Financial (GNW)

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

Analyst: Tanjila Shafi

We expect that Genworth will experience double-digit growth in its retirement, protection, and U.S. mortgage insurance segments, pushing return on equity past its target of 12% in 2008. We also believe that Genworth will strategically deploy its ample capital in high-growth businesses, which should further expand ROE. Furthermore, we find the current valuation attractive, at 1.2 times our 2007 estimate of book value, excluding other comprehensive income, compared to peer average of 1.8 times. We are increasing our 12-month target price by $3 to $42, based on our sum-of-the-parts valuation. /

American Home Mortgage (AHM)

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

Analyst: Jason Willey

The upgrade reflects our improved outlook for the health of the secondary mortgage market, particularly for Alt-A products. We think spreads have narrowed and liquidity has returned to the market, which we view as key for the company's gain-on-sale income and earnings. Following significant negative sentiment in first quarter, we believe market fundamentals have improved considerably in April. Driven by a better margin outlook, we are increasing our 2007 EPS estimate to $3.28 from $2.89. We are raising our target price by $3 to $25, 7.5 times our 2007 estimate. The shares currently yield 11.8%.


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