Markets & Finance

S&P Picks and Pans: Yahoo, GE, CNET, CBS, Ericsson, Agilent


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P REITERATES HOLD OPINION ON SHARES OF YAHOO (YHOO; 27.54):

In a strongly worded letter to YHOO's chairman, financier Carl Icahn announces his intent to push for the company's purchase by Microsoft (MSFT; 30.08). Icahn also announces a slate of 10 individuals expected to stand for election against YHOO's current directors. Having purchased 59 million YHOO share/share equivalents, Icahn owns over 4% of the company, and has requested FTC approval to raise his stake to about 7%. We think there is a good chance Icahn will be successful in getting a deal done at $33, MSFT's last offer, and we raise our 12-month target price by $2 to that level. -S. Kessler

S&P MAINTAINS BUY OPINION ON SHARES OF GENERAL ELECTRIC (GE; 32.66):

An unconfirmed report on WSJ.com says GE plans to sell its consumer appliance business. Operating income from the consumer and industrial division, which includes the appliance business, declined 34% in the first quarter, as the U.S. residential housing market slowed. GE has a history of shedding weakening high-volume, low-margin businesses, including the sales of its plastics and advanced materials businesses. We believe the sale of the appliance division would represent a normal business portfolio adjustment and would not signal a wholesale restructuring of the company. -R. Tortoriello

S&P DOWNGRADES RECOMMENDATION ON SHARES OF CNET NETWORKS TO HOLD FROM BUY (CNET; 11.41):

CNET agrees to be acquired by CBS Corp. (CBS) at $11.50 cash per share. Pending necessary approvals, we expect this transaction to be consummated by September. As a result, we are raising our 12-month target to 12 from 9.50. Although we are unsure if others were interested in acquiring CNET, we believe this deal constitutes an attractive value for the company. Thus, we expect that JANA Partners and its affiliates will likely discontinue their efforts to wage a proxy fight and to nominate new CNET directors in the hopes of generating additional shareholder value. -S. Kessler

S&P MAINTAINS SELL OPINION ON SHARES OF CBS CORP. (CBS; 24.82):

On a call to discuss the pending $1.8 billion CNET deal, CBS said it plans to report CNET as part of a new Interactive segment (including its online audience network), for which it sees mid-to-high-teens long-term revenue growth and margin expansion. But we are skeptical about how accretive CNET might be in the near term, based on 2008 guidance that we think implies cash flow margins shy of CBS's traditional radio and outdoor businesses. Also, while CBS says the deal is "affordable," we have some near-term concerns about financial flexibility for ample dividends and select acquisitions. -T. Amobi - CPA, CFA

S&P MAINTAINS HOLD OPINION ON ADSS OF ERICSSON (ERIC; 25.78):

In our view, ERIC's Capital Markets Day yesterday offered mixed messages. The company's key message was the medium-to-long-term potential in mobile broadband as an alternative to fiber/DSL or WiMAX. We are encouraged by the recovery of the U.S. telecom equipment market in 2008, following years of delays, due to consolidation, along with growing software and IPR sales. We believe the company is competitive and gaining share, but we think the global market it serves will remain weak. We view ERIC's valuation, based on our relative p-e and DCF analyses, as fair. -C. Van der Elst

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF AGILENT TECHNOLOGIES (A; 32.53):

Agilent posts April-quarter operating EPS of $0.46, vs. $0.33, beating our $0.43 estimate. Revenues rose 10%, as Bio-Analytical sales jumped 20% on robust growth in the life sciences and chemical analysis markets. Electronic Measurement sales rose 5%, aided by healthy aerospace/defense growth and a rebound in handset manufacturing test. The company continues to benefit from growth in the Asia Pacific region. We are raising our fiscal year 2008 (October) operating EPS forecast by $0.03 to $1.86, keeping fiscal year 2009's at $2.14, and lifting our 12-month target price by 3 to 39, based on a p-e multiple near peers. -A. Zino, CFA


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