Markets & Finance

S&P Picks and Pans: Qualcomm, Broadcom, Yum! Brands, Baidu.com


Analyst opinions on stocks making headlines in Wednesday's market

S&P MAINTAINS HOLD OPINION ON QUALCOMM SHARES

From Standard & Poor's Equity Research

QCOM; $38.53

We see as negative for Qualcomm a federal ruling that said the wireless chipset maker violated three patents owned by Broadcom. We expect Qualcomm to agree to make royalty payments to Broadcom under a license, restricting what we view as Qualcomm's strong cash balance. While we expect the company to have new products available shortly to avoid patent violations in the U.S., we believe revenues could be modestly pressured as handset makers look to gain market share. Qualcomm provided limited details on the potential impact, and we look for clarity in late January with December-quarter results. /T. Rosenbluth

S&P REITERATES BUY OPINION ON SHARES OF BROADCOM CORP.

BRCM; $27.42

A federal judge rules in favor of Broadcom regarding use by Qualcomm of three Broadcom patents. The injunction prohibits Qualcomm from making, using, or selling certain chipsets and software that infringe on Broadcom patents. As a result of the ruling, we expect royalty payments from Qualcomm to rise. However, at this juncture, it is difficult to determine the magnitude of the increase; we expect more information when Broadcom reports fourth quarter results. We are keeping our 12-month target price of $40. /D. Cathers

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF YUM! BRANDS

YUM; $37.74

We continue to see further gains for Yum shares in 2008, following a 30% increase in 2007. We are raising our 2008 EPS estimate by 5 cents to $1.95 on an additional expected decline in the dollar vs. the yuan, since we think recent signals from Chinese authorities suggest they will likely slightly increase the pace of the controlled revaluation of the yuan. We expect U.S. market conditions for Yum's brands to be extremely competitive, but expect the company will in 2008 overcome food safety issues that affected 2007. We maintain our discounted cash-flow (DCF)-based target price of $45. /M. Basham

S&P MAINTAINS HOLD OPINION ON SHARES OF NATIONAL CITY

NCC; $15.75

National City will pay a 21 cents quarterly dividend on February 1, a 49% reduction from its previous quarterly dividend. It also intends to issue non-dilutive Tier 1 capital in the first quarter in an effort to boost its capital ratio to between 7% and 8%. National City's capital ratio stood at 6.88% as of September 30. We believe these actions, as well as National City's recent decisions to exit the mortgage wholesale channel and cut staffing, will better position the bank to deal with what we expect will be a continuingly difficult environment. We are keeping our 12-month target price at $21. /F. Braden, CFA

S&P REITERATES HOLD OPINION ON BAIDU.COM INC. AMERICAN DEPOSITARY SHARES

BIDU; $398.87

Baidu.com announces its CFO Shawn Wang tragically passed away on December 27, in an accident in China during a holiday vacation. Wang joined Baidu.com in Sep. 2004, and we think contributed notably to the company's success. Baidu.com's most recently filed 20-F identified Wang as critically important to the company, and potentially very difficult to replace. In our view, Wang's loss is a notable negative, especially given its suddenness. Nonetheless, we believe Baidu.com will remain the leader in Chinese Internet search. We maintain our 12-month target price at $400. /S. Kessler

S&P REITERATES BUY OPINION ON SHARES OF CHICAGO BRIDGE & IRON

CBI; $60.35

We expect 30%-plus revenue growth to continue during 2008, driven by global strength in the energy sector. We see further demand for liquefied natural gas and refining projects, and expect wider margins on lower labor costs, a better backlog mix, improved operating efficiencies, and accretion from the Lummus Global acquisition. We are lifting our 2008 EPS estimate by 15 cents to $2.40. Blending our DCF and relative metrics, we apply an above-peer and historical forward P/E of 29X our 2008 projection, and raise our 12-month target price by $11 to $70. /S. Scharf


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