Markets & Finance

S&P Picks and Pans: Aetna, Sony, Baidu.com, XM Satellite Radio


Plus: analysts' opinions on Host Hotels & Resorts and Comcast

From Standard & Poor's Equity ResearchAetna (AET; $51.29)

Upgrades to buy from hold

Analyst: Paul Seligman

Second quarter operating EPS of $0.83, vs. $0.64, is $0.03 above our estimate on higher operating margin than we expected. AET's operating revenue grew 9.1% on higher pricing and 2.3% higher medical membership. We think its targets of at least 575,000 net new members by yearend and at least 3% annual member growth for long term are doable, based on its increasing geographic, product and market diversification. We are encouraged by strong cost control and cash flow. We are raising our 2007 EPS estimate by $0.07 to $3.42, 2008's by $0.10 to $3.85. We are raising our target price by $6 to $58.

Sony (SNE; $50.97)

Maintain hold on the ADRs

Analyst: Esther Kwon, CFA

June-quarter earnings per ADR of $0.51, vs. $0.25, were driven by revenue and profits above our forecasts. Sales increased 13%, with electronics up 12% (4% in local currency), and games rose 61%. We believe the ADRs are down today on losses in LCD TVs, reflecting price competition in Europe and late introduction of full high definition TVs in the U.S. However, we look for an upturn with the launch of HD TVs in September/October time frame. SNE was more cautious on the electronics and game environments and maintains its guidance despite strong results. Our fiscal year 2008 (March) EPS estimate remains $2.65.

Baidu.com (BIDU; $214.27)

Reiterate hold on the ADSs

Analyst: Scott Kessler

BIDU posts earnings per ADS of $0.54, vs. $0.21, $0.13 above our estimate. Revenues rose 109%, exceeding our forecast of 101%, reflecting product and service improvements made over the past few quarters. Growth in online marketing services did not decelerate much, despite seasonality. We think increases in traffic acquisition costs have been relatively well contained. We are raising our per-ADS earnings forecasts for 2007 to $2.15 from $1.69, 2008's to $3.28 from $2.44. Based on revised relative p-e-to-growth analysis, we are raising our target price to $235 from $137.

XM Satellite Radio (XMSR; $11.90)

Maintain hold

Analyst: Tuna Amobi, CPA, CFA

Before a $0.12 one-time charge, second quarter loss of $0.45, vs. loss of $0.62, is $0.06 and $0.01 wider than our and the Street's estimates. Tempered in-line net adds were 338,000, mainly on auto OEM gains, vs. anemic retail sales. We note pick up in OEM conversion, against significantly higher-than-expected subscriber acquisition costs. With the pending merger with Sirius (SIRI; $3.10) still under regulatory review, XMSR did not affirm earlier 2007 guidance for $1 billion subscription revenues, with 9.0-9.2 million year-ending customers, and $170-$180 million negative adjusted EBITDA expected to be positive in 2008.

Host Hotels & Resorts (HST; $21.30)

Upgrades to buy from hold

Analyst: Jason Willey

We believe recent share price weakness has provided an attractive entry point for shares of one of the highest quality lodging portfolios in the industry. We see HST benefiting from its portfolio of luxury and upper-upscale properties, concentrated in tier-one urban and resorts markets. We view as positive HST's exposure to business travel, presence in markets with high barriers to entry, and limited exposure to supply growth in suburban markets. We see HST's European joint ventures differentiating it from its less diversified peers. Our target price remains $25.

Comcast (CMCSA; $26.62)

Maintain buy

Analyst: Tuna Amobi, CPA, CFA

After what we see as a generally positive second quarter, we think the shares are down today partly on somewhat higher-than-expected basic losses, which may be partly due to seasonality. But we are comforted by trends in new digital phone markets, where an overwhelming majority of new customers are signing up for triple-play, likely available in nearly 85% of the cable footprint by end of 2007. CMCSA says it has integrated recent acquisitions. Our target price stays $33, on relative enterprise value-to-EBITDA and -per-subscriber. Risks include rising competition from DBS/telcos.


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