Markets & Finance

S&P Picks and Pans: Yum Brands, SAP, BOBJ, Ryder, Ethan Allen


Analyst opinions on stocks making headlines Monday

S&P REITERATES BUY RECOMMENDATION ON SHARES OF YUM BRANDS

From Standard & Poor's Equity Research

YUM; $35.43

Yum shares are higher this afternoon, ahead of third-quarter results due after the bell. We project Yum will report EPS of 45 cents, vs. 42 cents a year ago, on revenues of $2.44 billion. Our estimate reflects some lingering effect on U.S. operating margin from earlier food safety incidents, while international results should be strong. We note that shares of Burger King Holdings (BKC; $27) and McDonald's Corp. (MCD; $57) also are higher today, along with Yum, after some selling pressure last week in sympathy with Wendy's (WEN), which reported weak third-quarter sales. /M. Basham

S&P MAINTAINS HOLD RECOMMENDATION ON AMERICAN DEPOSITARY SHARES OF SAP AG

SAP; $56

S&P DOWNGRADES OPINION ON AMERICAN DEPOSITARY SHARES OF BUSINESS OBJECTS TO HOLD FROM BUY

BOBJ $57.43

Update: Our downgrade is based on valuation, after BOBJ ADSs have risen sharply after the company agrees to be acquired by SAP, subject to conditions and approvals. A review of BOBJ's third-quarter preliminary results leads us to lower our 2007 EPS estimate by 12 cents to $1.61, and 2008's by 9 cents to $2.02. The miss is not insignificant, as third-quarter licenses are $25 million below our estimate, which is at the midpoint of preliminary results. Despite lower estimates, we are raising our target price $6 to $59 to reflect SAP's proposed purchase price of €42, about US$59 at recent forex rates. /Z. Bokhari

S&P REITERATES HOLD OPINION ON SHARES OF PEROT SYSTEMS CORP.

PER $16.88

Perot Systems announces that Community Health Systems (CYH) will end its services agreement with the company. Community Health recently purchased Triad Hospitals, which signed a $1.2 billion contract with Perot Systems, although Perot Systems ceased recognizing those revenues in the second quarter. The contract was not adding to earnings, but it was expected to be a major contributor to revenues and EPS in the future. We expect Community Health to pay a termination fee and reimburse the company for some costs. We are keeping our 2007 EPS estimate of 86 cents, but lowering our 2008 estimate by 7 cents to $1.02. We are keeping our 12-month target price of $17. /D. Cathers

S&P REITERATES BUY RECOMMENDATION ON SHARES OF RYDER SYSTEM

R $45.86

We believe Ryder shares, which have fallen over 6% this morning, have overreacted to the company's warning that commercial truck rentals have been weaker than expected. This follows the already-announced moves to trim fleet size by various peers. With a business mix that, in our view, provides above-average earnings support, and valuations that are below historical averages, we consider the shares undervalued. While we are trimming our third-quarter EPS estimate by 9 cents to $1.13, and our full 2007 estimate by 25 cents to $4.14 to reflect near-term challenges, we are keeping our $61 target price. /K. Kirkeby, CFA

S&P MAINTAINS BUY OPINION ON SHARES OF ETHAN ALLEN INTERIORS

ETH $34.80

U.S. consumer spending on furniture and bedding is expected to grow 1.5% in 2007 and 2.2% in 2008, based on a consensus industry forecast complied by Furniture Today. In our view, the housing downturn has contributed to the weakest home furnishing outlook since 2001. We believe Ethan Allen, as a vertically integrated manufacturer and retailer, will benefit from a potential recovery in late 2008, as many of its peers have shut down plants or sold off brands. We see the company's management changes in marketing and advertising, announced today, as a positive that will sharpen retail focus. /K. Leon, CPA


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