Markets & Finance

S&P Picks and Pans: Cisco, AT&T, FedEx, AmeriTrade, Garmin


Analyst opinions on stocks making headlines Friday

S&P REITERATES HOLD OPINION ON SHARES OF CISCO SYSTEMS

From Standard & Poor's Equity Research

CSCO; $29.88

Board authorizes an additional $10 billion in stock repurchases, which increases the total authorized program amount to $62 billion. With an average purchase price of $19.89 since its inception in September, 2001, a more than 30% discount to the $30 level the stock trades at currently, we view the buyback program as largely shareholder friendly. However, we note that only about 43% of the total 2.3 billion shares repurchased since program inception yielded a reduced share count, reflecting mainly the issuance of stock option grants. Based on P/E analysis, we keep our 12-month target price at $33. /A. Bensinger

S&P MAINTAINS STRONG BUY OPINION ON AT&T SHARES

T; $39.37

AT&T has completed its cash-based acquisition of rural roaming partner Dobson Communications, ahead of the year-end closing we had expected. AT&T plans to complete the rebranding effort by mid-2008. While the deal should add only 2.5% more wireless customers to AT&T's base, we see the company reaping benefits from reduced roaming costs and improved churn. We look for AT&T to expand its operating margin in 2008 on greater efficiencies in both its wireless and wireline segments, along with modest revenue growth. We are keeping our 12-month target price $44, aided by a 3.6% dividend yield. /T. Rosenbluth

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF FEDEX

FDX; $96.96

FedEx lowers its fiscal 2008 (May) EPS guidance to $6.40-$6.70, from $6.70-$7.10, citing an 8% rise in fuel costs since it announced August-quarter results. FedEx also says trends in freight segment remain weak. We are cutting our fiscal 2008 and fiscal 2009 EPS estimates by 35 cents each, to $6.65 and $7.65. Despite these current negative factors, we think FedEx will start to see some benefits from what we expect to be ongoing global economic gains, and a bit of a downturn in fuel prices. We keep our 12-month target price at $140, a little under 20X our calendar 2008 estimate, as we move our valuation period forward. /J. Corridore, M. Jaffe

S&P REITERATES BUY RECOMMENDATION ON SHARES OF TD AMERITRADE

AMTD; $19.21

AmeriTrade reports record October monthly trading volumes, with daily average revenue trades of 336,000, up 45% year-over-year and 27% over September. Client assets, up 16% year-over-year, and average fee-based investment balances, up 34%, also saw strong growth. We believe heightened levels of market volatility are driving stronger trading activity, a trend we see as likely to continue in November. We also expect AmeriTrade to be a primary beneficiary of potential client and asset defections from E*Trade Financial (ETFC), which should positively impact AmeriTrade's revenue and earnings. /J. Willey

S&P REITERATES BUY OPINION ON AMERICAN DEPOSITARY SHARES OF THE9 LTD

NCTY; $24.87

Third quarter per-ADS earnings of 17 cents vs. 33 cents falls short of our 33 cents estimate. Revenues rose 36% as World of Warcraft, including WOW: The Burning Crusade, and Soul of The Ultimate Nation, supported notable online game service revenue growth. However, product launch and option expenses hurt profits. We reduce our 2007 per-ADS profit forecast by 34 cents to $1.07 on narrowed margins we now see, and as a result, we trim our 12-month target price by $2 to $40. Even so, we think The9's broader game offerings will boost long-term growth, and we continue to view its shares as undervalued. /S. Kessler, C. Montevirgen

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF GARMIN

GRMN; $96.58

Shares are up about 15% this morning following Garmin's announcement it is no longer pursuing a buyout of map-maker Tele Atlas, and that it has signed a long-term contract with Tele Atlas's main competitor, NAVTEQ (NVT). The NAVTEQ agreement runs through 2015, with an option to extend to 2019. We think Garmin executed a well thought out strategy that ultimately allowed it to benefit from its stock investment in Tele Atlas, and establish closer ties with NAVTEQ while securing the map data needed to compete. We are keeping our $136 target price. /J. Peters, CFA


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