Markets & Finance

S&P Picks and Pans: Apple, Intel, Boston Scientific, Rockwell Automation, Qwest, Allied Capital, CSG Systems


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P UPGRADES OPINION ON SHARES OF APPLE TO BUY FROM HOLD, ON VALUATION (AAPL; 111.53):

We are taking a more positive view of the valuation for AAPL, following share price declines since mid-September. We see a strong revenue growth story, which is tempered by our concerns about exposure to potentially softening demand for consumer electronics in the U.S. We are also concerned about pressure on gross margins as the company launches new products. We are keeping our EPS estimate of $5.22 for fiscal year 2008 (September) and reducing our fiscal year 2009 EPS forecast to $5.80 from $6.00. While lowering our target price to $141 from $151 on updated p-e analysis, we find the shares attractive. -T. Smith-CFA

S&P RAISES OPINION ON SHARES OF INTEL TO BUY FROM HOLD (INTC; 18.61):

At current share prices, we think valuation metrics are attractive, and offer a good entry point. We see marketshare gains and long-term margin expansion as INTC executes its technology and product strategies. In addition to growth from established microprocessor businesses, we expect growth from new and future offerings, such as its Atom processor and planned discrete graphics processor unit. However, we note that risks related to PC sales, INTC's memory business, and process implementations could add to share price volatility. We keep our 12-month target price of $24. -C. Montevirgen

S&P KEEPS HOLD RECOMMENDATION ON SHARES OF BOSTON SCIENTIFIC (BSX; 11.19):

The shares are weak today, we think largely on loss in a cardiac stent patent infringement lawsuit brought by Johnson & Johnson (JNJ; 67.69). In our view, the slide was exacerbated by a sell-side analyst downgrade. We see no impact on BSX sales from the lawsuit, which focused on the discontinued NIR stent. But we fear that the approximate $703 million in damages and interest would further strain BSX's balance sheet, if not overturned on appeal. We continue to expect intense competitive pressures in stent and defibrillator categories and expect more asset sales in coming quarters. -R. Gold

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ROCKWELL AUTOMATION (ROK; 37.34):

ROK announces that it will reduce its workforce by 3% and take a $50 million charge in the September-quarter. Despite ROK expecting the headcount reduction to lead to cost savings of $75 million in fiscal year 2009 (September), we are reducing our EPS estimates on lower expected demand, as we believe the restructuring is evidence of slowing end-market growth. We are reducing our fiscal year 2008 EPS forecast slightly by $0.02 to $4.04 on lower margin expectations. In addition, we are cutting fiscal year 2009's by $0.51 to $3.82 on expected nearly flat revenue and lower margins, and our target price by $13 to $39, on lower relative valuation. -M.Christy, CFA

S&P MAINTAINS HOLD OPINION ON QWEST COMMUNICATIONS SHARES (Q; 3.23):

Qwest workers' 20,000-member union failed to ratify a recently agreed upon 3-year labor agreement including wage and pension benefit increases. While Q has reactivated a contingency plan to operate, we are concerned the necessary concessions will result in pressure on 2009 EBITDA from higher employee-related expenses. We are lowering our 2009 EPS estimate by $0.03 to $0.35, down from our 2008 projection of $0.41. We are cutting our 12-month target price by $1 to $4.50, to reflect a reduced enterprise value/EBITDA multiple. However, we see Q's dividend yield of 10% providing support. -T. Rosenbluth

S&P UPGRADES OPINION ON SHARES OF ALLIED CAPITAL TO BUY FROM HOLD, ON VALUATION (ALD; 9.08):

We think the sell-off in the shares following yesterday's announcement that portfolio company Ciena Capital LLC filed for bankruptcy has been overdone. We note that prior to the announcement, ALD had already written down its investment to near zero. While the timing and size of potential recoveries from the bankruptcy are unknown, we do expect some recovery of the $320 million paid to cover Ciena obligations. We also think ALD retains access to ample capital to cover near-term obligations, including dividends. Well below our $15 target price, we would buy the stock. -M. Albrecht

S&P MAINTAINS SELL OPINION ON SHARES OF CSG SYSTEMS (CSGS; 16.66):

The shares are down for the second day in a row, we believe a reflection of macroeconomic concerns, and also competitive ones. CSGS is still up more than 40% from July lows following a major contract extension from Comcast to support part of CMCSA's territory. However, earlier this week, CSGS competitor Amdocs (DOX; 27.23) won business with CMCSA that includes support for additional operational systems in other parts of its territory. While we see potential long-term risks for CSGS, our sell opinion is largely predicated on the current premium valuation of its shares. -T. Rosenbluth


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