Markets & Finance

S&P Picks and Pans: Humana, Motorola, Royal Dutch Shell, SBA, InterContinentalExchange


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P RAISES RECOMMENDATION ON HUMANA SHARES TO BUY FROM HOLD (HUM; 46.50):

Q2 EPS of $1.24, vs. $1.28, beats our estimate by $0.06 on lower Medicare drug program ratio than we expected. Operating revenue rose 14% on 19% more Medicare Advantage and 9% more commercial members. We are encouraged by sequential organic member growth in both groups, the lower commercial medical loss ratio and HUM's forecast of strong second-half cash flows. We believe HUM is prepared for the planned 2011 Medicare private fee-for-service transition, with PPO networks set to cover 82% of its PFFS members. We raise our 2008 EPS estimate $0.15 to $4.40 and target price $2 to $53. -P. Seligman

S&P MAINTAINS HOLD OPINION ON MOTOROLA SHARES (MOT; 8.81):

We view MOT's hiring of Sanjay Jha as co-CEO and head of the mobile devices business as a positive. We believe his tenure at Qualcomm ($55.47, hold), including as COO and head of the wireless chipset business, could prove valuable with regard to improving MOT's struggling product pipeline and working with suppliers and customers. We contend this addition also increases confidence in MOT's plans to separate its handset segment from its network and enterprise mobility operations in 2009. However, we believe MOT's challenges to regain much lost handset market share persist. -T. Rosenbluth

S&P LOWERS OPINION ON ADSS OF ROYAL DUTCH SHELL TO HOLD FROM BUY (RDS.A; 71.28):

RDS.A reports Q2 net profit of $11.56 billion, 6% below market estimates. Further, before non-recurring items, Q2 earnings per ADS rose only 7% to $2.56, exceeding our $2.18 estimate (corrected earnings per ADS). We believe that in the short-term the current upstream strong performance will be diluted by lower refining margins, as evidenced by the fact that RDS.A's oil products and chemical divisions accounted for 12% of earnings vs. 42% in the second quarter 2007. Thus, we are reducing our blended peer comparison and DCF-based 12-month target price to $84 from $92. -C .Tiscareno

S&P MAINTAINS BUY OPINION ON SHARES OF SBA COMMUNICATIONS (SBAC; 37.68):

SBAC reports Q2 loss, before one-time items, of $0.12, vs. $0.12 loss, $0.07 wider than our loss estimate. Revenues were slightly lower than we expected due to site development revenues, while EBITDA was slightly better than expected. Depreciation also came in higher than anticipated. The company raised 2008 revenue guidance by $1 million and EBITDA by $7 million. SBAC will hold a conference call at 10 a.m. ET, and we look for more details on the recently announced acquisitions of Optasite and Light Tower LLC. We continue to expect strong leasing activity and EBITDA performance throughout 2008. -J. Moorman, CFA

S&P MAINTAINS BUY OPINION ON SHARES OF INTERCONTINENTAL EXCHANGE (ICE; 96.20):

ICE posts Q2 operating EPS of $1.19, vs. $0.75, $0.01 above our estimate. Results benefitted from strong volume, which grew 18%, reflecting ICE's exposure to crude oil contracts. We believe results also reflect the high operating leverage of the company's business model, Specifically, revenues increased 44%, while expenses rose only 7%. We look for strong volume trends to continue for ICE's commodity businesses. We are raising our 2008 EPS estimate by $0.02 to $5.20, but maintaining our 12-month target price of $120, 23.1 times our 2008 EPS projection, in line with peers. -S. Plesser


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