Markets & Finance

S&P Picks and Pans: Caterpillar, eBay, AMD, Centex, Xerox


Analyst opinions on stocks making headlines Friday

S&P MAINTAINS HOLD OPINION ON SHARES OF CATERPILLAR

From Standard & Poor's Equity Research

CAT; $74.92

Third-quarter EPS of $1.40, vs. $1.14 one year earlier, beats our $1.28 estimate, but misses the Street's by 3 cents. International sales were stronger than we forecast, partly offset by weak on-highway truck engines and U.S. construction, manufacturing inefficiencies, and higher material costs. Shares are off almost 4% today after Caterpillar cut 2007 EPS guidance to $5.20-$5.60 from $5.30-$5.80. We still see U.S. businesses bottoming in 2008, and we lift our 2007 EPS forecast to $5.25 from $5.15 and 2008's to $5.55 from $5.50. We keep our target price at $82, 15X our 2008 EPS projection, in line with historical averages. /P. Wang

S&P UPGRADES OPINION ON EBAY INC. SHARES TO STRONG BUY FROM BUY, ON VALUATION

EBAY; $36.9

After Wednesday close, eBay posted third quarter results better than we projected. Management raised forward guidance, and we increased our estimates. After rising to nearly $44 in after-hours trading following Wednesday's results, the stock has fallen more than 16%. We now see it as compelling value at 21X our 2008 EPS view, a discount to peers and to the 3-year EPS growth rate we see at 33% and well under our $50 target price. We believe the marketplaces segment is healthy and will benefit from increasing advertising activity, PayPal will continue to expand rapidly, and Skype will be better managed. /S. Kessler

S&P UPGRADES RECOMMENDATION ON SHARES OF CENTEX TO HOLD FROM SELL, ON VALUATION

CTX; $24.79

The shares have fallen below our $25 12-month target price, applying a just under 0.7X target ratio of price-to-book, in line with large homebuilders group. Our net tangible book value estimate reflects impairment charges of $900 million which Centex reported last week. Full September-quarter results will be posted next Tuesday. We view Centex as one of the better-managed homebuilders. We see its balance sheet as strong and Centex has relied less on acquisitions than others to grow. Despite our expectation of a weak housing market through early 2008, we would hold Centex shares for a potential recovery. /K. Leon, CPA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF XEROX

XRX; $16.99

Xerox reports third quarter EPS of 27 cents vs. 54 cents ($0.23 before one-time items), which is 3 cents below our estimate. Revenues increased 12%, led by color printing growth, and boosted by currency and acquisitions. We believe an emphasis on new equipment products should help support growth at moderate levels, despite some slowing that we expect for the U.S. economy. We project margins will improve slightly through 2008. We are raising our EPS estimates to $1.19 from $1.18 for 2007, and to $1.35 from $1.32 for 2008. We are maintaining our 12-month target price of $20. /T. Smith, CFA

S&P REITERATES HOLD OPINION ON SHARES OF ADVANCED MICRO DEVICES

AMD; $14.55

Third-quarter operating loss of 46 cents, vs. EPS of 27 cents one year earlier, is narrower than our 69 cents loss estimate. Sales rose 18% from second quarter, reflecting strong microprocessor unit and graphics segment sales. Gross margins widened notably on higher volume, better mix and lower unit cost. We view results positively and believe that AMD gained market share with lower-end products. However, we remain concerned about higher-end product sales and rising operating expenses. We are narrowing our 2007 loss estimate by 28 cents to $2.56, but keeping our 12-month target price of $17, based on forward relative analysis. /C. Montevirgen

S&P UPGRADES OPINION ON SHARES OF SANDISK TO BUY FROM HOLD

SNDK; $50.31

Sandisk posts third quarter EPS, before intangibles, of 40 cents, vs. 51 cents, 5 cents below our estimate. We are pleased by growth in product and royalty sales across all major segments. We see captive supply in Europe leading to market share gains. We expect minor declines in pricing, compared with first half of 2007, to continue in the fourth quarter, as inventories appear to be lean and demand outpaces supply. We are keeping our blended P/E and discounted cash flow-based target price of $59. We are not concerned by near-term capacity constraints, and view the shares as attractive for purchase. /J. Hingorani


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