Markets & Finance

S&P Picks and Pans: Microsoft, Qualcomm, DISH, Lowe's, Lennar


Analyst opinions on stocks making headlines Tuesday

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF MICROSOFT

From Standard & Poor's Equity Research

MSFT 29.27

According to an unconfirmed report in The Wall Street Journal, Microsoft is in talks to acquire a 5% equity stake in privately held Facebook for $300-$500 million. We view such a deal as having merits, as it would provide Facebook with funding to pursue aggressive expansion strategy. In return, Microsoft would strengthen its relationship with Facebook and garner market share in the social networking market, which we project to be one of the fastest growing segments in online advertising. We would view this development as a positive and keep our EPS estimates and $36 target price. /J. Yin

S&P MAINTAINS HOLD RECOMMENDATION ON QUALCOMM SHARES

QCOM 41.01

Qualcomm raises its September-quarter EPS guidance to reflect sequential growth in the shipment of its chips that support CDMA phones. We believe the company's royalty business is tracking as previously expected. We are modestly increasing our September-quarter revenue forecast and now see EPS of 47 cents, after 5 cents for stock option expenses and the impact of share buybacks. However, we are leaving our fiscal 2008 (ending September) EPS estimate at $1.90, since we see increased operational risk that a patent litigation settlement or a delay in shipments may occur in future periods. /T. Rosenbluth

S&P MAINTAINS SELL OPINION ON SHARES OF ECHOSTAR COMMUNICATIONS

DISH 44.17

EchoStar will acquire Sling Media in a $350 million deal for the private digital TV equipment/software provider, to close in the fourth quarter. EchoStar will also spin off non-core wholesale businesses (set-tops, international, fixed satellite), separate from its core U.S. consumer pay-TV business. While we think Sling Media provides potentially complementary offerings, it's not clear that this relatively modest deal provides optimal scale for the spin-off. We believe virtually all of the company's inherent value lies within its core U.S. DISH network business, now facing stiffer competition from cable's bundled offerings. /T. Amobi, CPA, CFA

S&P REITERATES BUY RECOMMENDATION ON SHARES OF LOWE'S

LOW 28.98

At its 2007 Analyst Conference, Lowe's reduces its fiscal 2008 (ending January) EPS guidance to the low end or slightly below its previous forecast range of $1.97-$2.01. It cites regional drought conditions as limiting its outdoor categories. We continue to be concerned by the challenging macro conditions persisting in the housing market, and are trimming our fiscal 2008 and fiscal 2009 EPS estimates to $1.97 and $2.17, from $2.01 and $2.28. However, we think the shares remain attractive, trading at historical trough levels of 13.3 times our fiscal 2009 EPS estimate and at a p-e-to-growth rate of under 1.0 times. /M. Souers

S&P MAINTAINS SELL OPINION ON LENNAR CORP. SHARES

LEN 24.18

Lennar reports an August-quarter loss of $3.25 per share vs. EPS of $1.30, after $847 million of one-time asset write-downs, wider than our 60 cents loss estimate. One-time write-downs for investments reflect lower prices for speculative homes and homesites not sold, write-offs of option deposits for land under option contracts, and investments in unconsolidated joint ventures. In the August quarter, cancellations were 32% of total contracts, new orders declined 48%, and $2.2 billion backlog dropped below quarterly sales. We will update after the 11:00 am EDT conference call. /K. Leon-CPA


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