Markets & Finance

S&P Picks and Pans: Hewlett-Packard, Yahoo, Time Warner, Intuit, BJ's


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P REITERATES BUY RECOMMENDATION ON SHARES OF HEWLETT-PACKARD (HPQ; 46.46):

HPQ posts April-quarter operating EPS of $0.87, vs. $0.70, in line after preannouncement May 13. GAAP EPS was $0.80, vs. $0.65. Revenue rose 11%, aided by strong overseas demand and forex. We view costs as well controlled. We have more confidence in our forecasts given HPQ's progress on cash flow so far in fiscal year 2008 (October). We believe the company can continue to buy back shares despite a need for cash for its pending acquisition of Electronic Data Systems (EDS; 24.30). We are keeping our EPS projections of $3.56 for fiscal year 2008 and $4.00 for fiscal year 2009, and our p-e-based 12-month target price of 57. -T. Smith, CFA

S&P REITERATES HOLD OPINION ON SHARES OF YAHOO (YHOO; 27.48):

An unconfirmed Reuters story indicates that Microsoft (MSFT; 28.80) is not looking to buy YHOO, according to CEO Steve Ballmer, but rather is discussing transactions that could create value. Nonetheless, Carl Icahn has been gaining support to pressure YHOO to sell to MSFT. Another buyout offer from MSFT is hardly a forgone conclusion, but we do expect another one to eventually be made. Also, according to an unconfirmed story in today's WSJ, MSFT plans to pay people using its search service to find and buy items, and we think this could lead to market-share losses for YHOO. -S. Kessler

S&P MAINTAINS HOLD OPINION ON SHARES OF TIME WARNER (TWX; 16.15):

TWX sets new details for "complete structural separation" from Time Warner Cable (TWC; 30.20), giving up its 84% stake in TWC in exchange for $9.25 billion cash dividend. While TWX stands to lose sizable cash flow and consistent growth from TWC, we think this would simplify its ownership structure, relieve it from the higher capital needs of the second largest U.S. cable operator (vs. TWX's remaining film/TV, Internet, print businesses), and potentially allow it to focus more on charting a new strategic course for AOL. We expect more details on possible uses of special dividend. -T. Amobi, CPA, CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF INTUIT (INTU; 28.13):

We calculate April-quarter EPS of $1.34, vs. $1.10, above our $1.25 estimate. Sales rose 15% to $1.31 billion, beating our $1.28 billion forecast on strong Consumer Tax sales. QuickBooks grew 2% organically on tough comps. We think INTU is executing well in core franchises. We see modest organic small-business growth due to the slow U.S. economy, although we see acquisitions aiding growth. We are lifting our fiscal year 2008 (July) EPS forecast by $0.09 to $1.42, fiscal year 2009's by $0.07 to $1.60, and our target price by $2 to $32, a p-e of 20.9 times our forward 12-month EPS estimate of $1.55, within historical ranges. -Z. Bokhari

S&P REITERATES BUY RECOMMENDATION ON SHARES OF BJ'S WHOLESALE CLUB (BJ; 38.26):

BJ reports April-quarter EPS of $0.29, vs. $0.20, $0.03 above our estimate. Results benefitted from 9.6% rise in comp-store sales, improved sales leverage and share repurchases, despite increased coupon redemptions. To reflect favorable traffic trends and merchandise improvements, we are increasing our fiscal year 2009 (January) EPS forecast by $0.06 to $2.10, near the midpoint of BJ's $2.04-$2.14 guidance range, despite uncertainty about the second half based on weaker macro environment. As a result, we boost our 12-month target price by 4 to 45, on updated comparative and forward p-e analyses. -J. Agnese


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