Markets & Finance

S&P Picks and Pans: Microsoft, American Express, Ericsson, Ingram Micro, Netgear


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF MICROSOFT (MSFT; 31.80):

Microsoft posts March-quarter EPS of $0.47, vs. $0.50, $0.02 above our estimate. Revenue rose 0.4% to $14.5 billion, $63 million below our view. Excluding the impact of deferred revenue in the prior year, revenue and EPS increased 14% and 27%, respectively. The company cited slower PC unit growth in developed countries, inventory adjustments, and software piracy for the revenue shortfall, but provided an upbeat outlook for June-quarter and fiscal year 2009 (June). We expect PC unit growth to rebound in second half 2008. We are increasing our fiscal year 2008 EPS estimate to $1.89 from $1.87, and keeping our 12-month target price of $43. -J. Yin

S&P MAINTAINS HOLD OPINION ON SHARES OF AMERICAN EXPRESS (AXP; 46.16):

AXP posts first quarter operating EPS of $0.84 vs. $0.90, $0.03 above our estimate. Weaker results in U.S. operations was offset by strength overseas. Credit quality deteriorated, as 90-day past-due accounts totaled 3.3% of receivables, compared to 3.0% in the fourth quarter, largely due to a weakening U.S. housing market. We look for steadily rising provisions throughout 2008, assuming a modest decline in employment. We are lowering our 2008 EPS estimate by $0.08 to $3.40. We are also reducing our 12-month target price by $4 to $54, 15.9 times our 2008 EPS estimate, a discount to AXP's historical average. -S. Plesser

S&P MAINTAINS HOLD OPINION ON ADSS OF ERICSSON (ERIC; 21.70):

ERIC posts first quarter earnings per ADS of $0.33 vs. $0.53, exceeding our $0.25 estimate. Revenue growth of 4.8% beat our forecast, with gains in the networks segment, where we expected losses, and faster growth in multimedia - though professional services was lighter. Overall EBIT, though down sharply, was ahead of our forecast, which we recently lowered due to a wireless joint venture profit warning. We believe the operating market will remain difficult in 2008, but see results underlining ERIC's strong global position in networks. We will update following conference call. -C. Van Der Elst

S&P MAINTAINS STRONG BUY RECOMMENDATION ON SHARES OF ALTRIA GROUP (MO; 22.53):

First quarter operating EPS of $0.37, vs. $0.33, is in line with our estimate. Shipment volume of 40.1 billion units, down 1.2% (and down 3.5% if adjusted for trade inventory changes) was a bit better than our forecast, but the Philip Morris USA unit's profitability fell short on higher pricing promotions and carryover Philip Morris International. expenses. Philip Morris USA continued to gain share, which rose 0.5% on strong Marlboro volumes. We see improvement in the second half over the first, as PMI expenses fall off and restructuring savings are realized. We are keeping our 2008 EPS estimate of $1.66 and our $27 target price. -E. Kwon, CFA

S&P DOWNGRADES SHARES OF INGRAM MICRO TO HOLD FROM STRONG BUY (IM; 15.68):

First quarter EPS of $0.37, vs. operating EPS of $0.40, is $0.03 below our estimate. We are lowering our 2008 revenue growth estimate to 3% from 5.5% on weakness in U.S. and Europe. Operating margins are weakening, and we believe IM will need to take steps to reduce expenses and improve productivity. We are cutting our 2008 EPS estimate by $0.27 to $1.65, on our concern that emerging markets and the small and medium-sized business segment, which are current areas of strength, could slow. We are lowering our target price by $4 to $17, on a peer-average p-e of 10.3 times our 2008 estimate. -D. Cathers

S&P DOWNGRADES OPINION ON SHARES OF NETGEAR TO HOLD FROM BUY (NTGR; 17.45):

NTGR posts first quarter EPS of $0.36, vs. $0.42, missing our $0.39 estimate, hurt by lower sales in the U.K. amid a more difficult macroeconomic environment. While gross margin remained steady, we are disappointed by the company's ability to rein in operating costs in line with the lower sales. We also remain wary of intensifying pricing pressure in the large U.S. market. With our view of lower operating leverage in the business model, we are cutting our 2008 EPS estimate by $0.33 to $1.42. Based on revised relative analysis, we are lowering our 12-month target price by $10 to $22. -A. Bensinger


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