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Still Buy Boeing


Berkshire Hathaway (BRK.A)

Analyst: David Braverman

The company posted 2001 $30 per share operating loss, and $521 EPS after realized gains. Both are a bit below expectations. This primarily reflects a $4.3 billion pretax reinsurance underwriting loss (roughly half that is related to September 11). Book value fell 6.2%, the first decline ever. Bright spots include an underwriting profit at GEICO, a strong performance from newly acquired Johns Manville and Benjamin Moore as well as sharply higher profits at MidAmerican Energy. S&P sees $1,200 operating EPS for 2002, and $1,800 after realized gains.

Boeing (BA): Maintains 5 STARS (buy)

Analyst: Robert Freidman

Boeing will take a $1.4-$1.9 billion goodwill charge related to its 2000 acquisition of Hughes' satelite-making operations. S&P is not surprised by the big valuation write-down. At a $3.75 billion price tag, S&P questioned Boeing's willingness to pay a hefty 16 times operating profits for a mediocre generator of profits-to-return on equity. Despite middling growth prospects and the economics of most of the company's operations, Boeing is still statistically cheap. Based on free cash flow models using a very low 3% long-term free cash earnings at compound annual growth rate (CAGR) projections, S&P calculates Boeing at a 10% discount to the conservative $55 per share fair-value estimate.

General Electric (GE): Maintains 3 STARS (hold)

Analyst: Robert Friedman

Late Friday, the company released its highly anticipated 2001 annual report. In response to the Enron debacle, the company announced it would improve financial disclosure. However, after examining the report, S&P views most improvements as cosmetic. For example, although GE expanded its coverage of segment sales/earnings performance to 26 vs. 12 units, the company still didn't disclose highly material R&D expenses and non-operating pension gains on a segment basis. GE is trading only at a slight discount to its $43-per-share fair value estimate.

Intersil Corp. (ISIL): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

Intersil announced plans to acquire Elantec Semiconductor for $1.4 billion, and preannounced an upside to first quarter results. Under the deal's term, Elantec shareholders will get 1.24 shares of Intersil plus $8 per share in cash per Elantec share. The deal will be accretive to 2003 EPS. First-quarter revenues are now seen up sequentially by 6-8% vs. prior guidance of 3-5%, and EPS is seen a penny ahead at $0.13. S&P is upping the 2002 estimate by $0.02 to $0.61. While S&P likes the fact that Elantec broadens Intersil's product line into DVD chips and optical storage products, with a price-sales ratio of seven times S&P's estimates, Intersil is trading at the high end of the company's historical average and S&P says investors should hold shares.


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