Markets & Finance

S&P Picks and Pans: Sprint, ICE, KKR Financial, ValueClick


Analyst opinions on stocks making headlines Friday

S&P UPGRADES SHARES OF SPRINT NEXTEL TO HOLD FROM SELL

From Standard & Poor's Equity Research

(S; $17.40

Sprint shares are down 11% since reporting second quarter results in early August and have fallen through our 12-month target price of $18. While we believe Sprint faces wireless challenges in the second half of 2007 as it loses market share, we expect modest EBITDA growth in 2008 from cost reduction efforts in wireline operations. We are trimming our 2007 EPS estimate by 2 cents to 86 cents, but raising our 2008 estimate by 5 cents to $1.00. With Sprint trading at an enterprise value/EBITDA multiple of 6.3 times, below smaller wireless peers and in line with larger telcos, we see further downside as limited. /T. Rosenbluth

S&P UPGRADES SHARES OF INTERCONTINENTALEXCHANGE TO BUY FROM HOLD

ICE; $127.09

We see catalysts for the shares, including growth in clearing revenues driven by moving this business in-house, the launch of Russell 2000 index contracts, and continued volatility in ICE's core energy markets. We expect further industry consolidation, and we view ICE as an attractive partner, based on marketshare in energy and soft commodities, OTC presence, and clearing capabilities. We are trimming our 2007 estimate to $3.38 from $3.48, but raising 2008's to $4.93 from $4.87 and boost our 12-month target price to $150 from $146, 30.5 times our 2008 estimate, in line with peers. /J. Willey

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF KKR FINANCIAL

KFN; $15.07

KKR Financial agrees to sell seven of its private equity investments for net cash proceeds of $191 million. The firm will record a gain on sale of approximately $51 million, primarily in the fourth quarter, representing an internal rate of return of 19%. We view the sale of these non-core investments as favorable, since it will add liquidity and provide more capital for reinvestment in new corporate debt transactions, which we see providing more predictable and attractive leveraged return on equity. While we believe liquidity issues have been addressed, we see limited near-term catalysts for the shares. /J. Willey

S&P REITERATES BUY OPINION ON SHARES OF VALUECLICK INC.

VCLK; $19.91

ValueClick promotes John Pitstick, who had served as a senior member of the company's finance team since March, 2005, to be its new CFO. Scott Ray, after more than two years as CFO at ValueClick, has left to take the same position at Internet service provider United Online (UNTD; $13.39). We think this development is negative, given Ray's nearly five years in multiple roles with ValueClick, and the decision to leave for a smaller firm whose primary business offers less growth potential, in our view. We also note ValueClick appointed a new CEO in May. Even so, we still see ValueClick as attractively valued. /S. Kessler

S&P REITERATES BUY RECOMMENDATION ON CHINA FINANCE ONLINE ADS

JRJC; $13.62

The company agrees to acquire 85% of Daily Growth Investment Company Limited, a licensed securities brokerage firm based in Hong Kong, for $3 million, subject to customary approvals. China Finance will have the right to acquire the remaining 15% within 5 years. This acquisition would enable the company to provide brokerage services as well as financial information on Hong Kong-listed securities. We view this deal as synergistic and part of China Finance's strategy of acquiring complementary companies to expand its market opportunity. We are keeping our 12-month target price of $19. /J. Yin


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