Markets & Finance

S&P Picks and Pans: Apple, TI, Cisco, Coach, TD AmeriTrade


Analyst opinions on stocks making headlines Tuesday

S&P UPGRADES RECOMMENDATION ON SHARES OF APPLE TO BUY FROM HOLD

From Standard & Poor's Equity Research

AAPL; $174.36

Apple reports September-quarter EPS of $1.01 vs. 62 cents, above our estimate of 88 cents. Revenues rose 29%, driven by 34% higher unit shipments of PCs and a 40% PC segment revenue gain. iPod shipments rose 17%. With iPhone introductions scheduled for the U.K. and France in November, we think a sales spurt can continue. We are raising our EPS estimates to $4.70 from $4.55 for fiscal 2008 (Sep.) and to $5.70 from $5.50 for fiscal 2009. We are increasing our 12-month target price to $207 from $182, based on our revised P/E analysis using a higher target multiple to reflect growth potential we foresee. /T. Smith, CFA

S&P DOWNGRADES OPINION ON SHARES OF TEXAS INSTRUMENTS TO HOLD FROM STRONG BUY

TXN; $34.27

Texas Instruments posts September-quarter EPS of 52 cents vs. 45 cents, ahead of our 50 cents estimate. Sales rose 7% from last quarter, reflecting strong analog but weaker-than-expected DSP and DLP sales. Gross margin widened on more favorable sales mix and utilization. Lower operating expenses contributed to higher operating margin. Although we think that the company will gain market share in analog, we see share losses in wireless adding notable risk to growth. We are cutting our 2007 EPS estimate by 4 cents to $1.79, and reducing our target price by $8 to $36 to reflect our view of slower growth and higher risk. /C. Montevirgen

S&P REITERATES BUY RECOMMENDATION ON SHARES OF CISCO SYSTEMS

CSCO; $31.05

Cisco agrees to acquire Navini Networks, a WiMAX equipment supplier, for $330M in cash, pending approvals. It aims to use Navini's technology to drive broadband penetration in emerging countries. We believe WiMAX market is gaining momentum, evidenced by increased carrier trial activities. We view the transaction as another example of the significant advantage of CSCO's large cash position of more than $22 billion, as it enables the company to make numerous acquisitions in attractive emerging technologies. On peer-average P/E, we maintain our 12-month target price of $36. /A. Bensinger

S&P REITERATES BUY RECOMMENDATION ON SHARES OF TD AMERITRADE

AMTD; $19.36

September-quarter EPS of 33 cents vs. 21 cents is a penny ahead of our forecast. Results were driven by record daily average revenue trades, strong expense management, and the company's share repurchase program. We expect trade volumes to benefit from ongoing market volatility, and we see accelerated account and asset growth driving margin and earnings expansion over coming quarters. We are raising our fiscal 2008 (Sep.) EPS estimate by one cent to $1.28, on higher trade volumes. We are lowering our 12-month target price to $23 from $25, 18X that estimate, to be in line with peers. /J. Willey

S&P MAINTAINS HOLD OPINION ON LEVEL 3 COMMUNICATIONS SHARES

LVLT; $3.63

Level 3 posts a third-quarter loss of 11 cents vs. a loss of 12 cents, 3 cents narrower than we expected. Revenues were slightly ahead of our projection, with a boost from an expiring contract, but we contend that core transport operations were relatively weak. The company acknowledged that the provisioning problems it had faced in second quarter have continued, and we believe they will persist until mid 2008. We are widening our 2008 loss estimate by 5 cents to a 41 cents loss. Based on revisions to enterprise value/EBITDA analysis to reflect operating risks, we are lowering our 12-month target price by 50 cents to $4.50. /T. Rosenbluth

S&P RAISES RECOMMENDATION ON COACH SHARES TO STRONG BUY FROM HOLD

COH; $37.50

Coach met our September-quarter estimate of 41 cents vs. 31 cents (continuing ops.) as same-store sales rose 19%, 11% at retail stores and 27% at factory stores. Coach acknowledges slowing traffic, offset by 8% gain in average retail handbag price, with 100% rise in sales of $400-plus handbags and improved conversion rates. We see selloff today as a buying opportunity. With potential for 500 North American stores, Asia expansion and developing product categories (footwear, fashion jewelry), we see 3-year earnings growth rate of 25%, and keep 12-month $53 target price, 25X our fiscal 2008 (June) estimate. /M. Driscoll, CFA


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