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S&P Upgrades Dell

Dell (DELL): Upgrades to 5 STARS (strong buy) from 3 STARS (hold)

Analyst: Megan Graham-Hackett

We believe that the opportunity for Dell to increase its PC market share next year has improved with the potential sale of International Business Machines' (IBM) PC unit. In addition, we believe structural improvements have been made in Dell's operating leverage, enabled by volume levels achieved in both servers and printers. To reflect these assumptions, we are increasing our fiscal 2006 (ending January) earnings per share estimate by 6 cents to $1.56. We are raising our discounted cash flow-derived target price to $49 from $38, based on our higher net income growth forecast.

Qualcomm (QCOM): Reiterates 5 STARS (strong buy)

Analyst: Kenneth Leon, CPA

We are raising our 12-month target price to $53 from $50, based on our revised discounted-cash-flow model and our confidence that the company can maintain its unique pricing power within the telecom equipment industry. Applying a p-e multiple of 35.3 times to our fiscal 2006 (ending September) earnings per share estimate, a premium to peers that we think is warranted by above-average growth potential, we arrive at our target price of $53. In the next 12 years, we estimate that Qualcomm can realize 21% annualized cash flow growth. In our view, risks to our opinion and target price are dependent on CDMA global handset demand.

Boeing (BA): Reiterates 3 STARS (hold)

Analyst: Robert Friedman, CPA

We advise investors not to read too much in Boeing's decision to replace its top commercial jet salesman. We think weak demand drivers of the commercial jet-making industry have much more to do with sluggish commercial jet orders than sales acumen. We surmise that slow-growing, saturated global markets, powerful purchasing power of cost-conscious airline customers, and our view of the ability of archrival Airbus to obtain cheap government financing, probably have more to do with sluggish commercial jet sales. We're still forecasting 10-year free cash flow growth rates of 6% for Boeing.

Intuit (INTU): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

We are raising our fiscal 2005 (ending July) earnings per share estimate to $2.01 from $1.96, following further consideration of Intuit's October-quarter results and guidance provided in November. However, based upon our revised discounted cash-flow analysis, we are lowering our 12-month target price to $49 from $51, reflecting our forecast of modestly lower growth than we had previously expected in fiscal 2006 through fiscal 2008. We also believe that increasing competition from Microsoft (MSFT), which recently announced greater small-business capabilities in its Office software, is a growing concern.

Circuit City (CC): Maintains 4 STARS (buy)

Analyst: Amy Glynn, CFA

Shares of Circuit City are down about 10% today after November-quarter comparable store sales fell 4.3%. Sales of advanced TVS, digital imaging, and portable audio products were strong, but declines in music/movies and wireless hurt sales. Circuit City cites a less promotional strategy on Black Friday, whereas we think peer Best Buy (BBY) offered heavy discounts on loss leaders such as CDs. While we view sales performance as disappointing, we see year-over-year margin improvement aiding growth. We are lowering our fiscal 2005 (endubg February) earnings per share estimate to 32 cents from 39 cents, and trimming our 12-month target price by $2 to $18.

BellSouth (BLS): Maintains 1 STAR (strong sell)

Analyst: Todd Rosenbluth

At today's analyst day, BellSouth highlighted its growth initiatives related to broadband and Cingular Wireless, many of which we view as aiding longer-term results. However, we expect 2005 wireline revenues to be weaker than BellSouth's guidance, which should somewhat offset wireless gains from the Cingular acquisition. We expect consolidated EBITDA margin to narrow more than 300 basis points in 2005 on pricing pressure, higher pension costs and the wireless integration. Our 12-month target price is $24, based on relative p-e analysis and our discounted-cash-flow model, and we view the shares as overvalued.

GTECH Holdings (GTK): Reiterates 3 STARS (hold)

Analyst: Thomas Graves

With an acquisition of the 50% equity stake in video-slot provider Atronic expected Dec. 31, 2006, subject to approvals, we see GTECH continuing on a longer-term growth and diversification path. We see fiscal 2006 (ending February) earnings per share of $1.55. We remain wary of a situation in Brazil in which legal action could result in future damages against GTECH. However, we believe GTECH's leading position in the on-line lottery area, and growth opportunities elsewhere, merit a p-e, based on estimated calendar 2005 earnings per share, similar to the S&P 400. We are raising our 12-month target price to $28 from $26.

Navistar International (NAV): Maintains 3 STARS (hold)

Analyst: Anthony Fiore, CFA

Navistar International says fiscal 2004 (ending October) financial results will be delayed, pending the outcome of an expected accounting adjustment. It sees October-quarter earnings per share of $1.88, vs. 72 cents, ahead of our $1.75 estimate. October-quarter fiscal 2003 results exclude a benefit from the adjustment of restructuring charges. Navistar sees fiscal 2005 earnings per share of $4.60 to $5.00, including an expected tax benefit of $65 million. We are raising our fiscal 2005 earnings per share estimate by 80 cents to $4.80, to reflect the expected tax benefit, and increasing our 12-month target price to $40 from $38. We believe shares of Navistar are fairly valued, and do not recommend adding to positions.

DaVita (DVA): Reiterates 3 STARS (hold)

Analyst: Cameron Lavey

According to an article in today's Wall Street Journal, DaVita is planning to buy the dialysis operations of Gambro AB for about $3 billion. While neither company has issued any statements, we think that such a deal, if approved, would be a positive for DaVita, depending upon the final terms. We are maintaining our 2004 earnings per share estimate of $2.11, and raising our 2005 estimate by 6 cents to $2.30 to reflect higher reimbursement rates expected in 2005. We are also raising our 12-month target price by $3 to $36, about 16 times our 2005 earnings per share estimate, in line with peers.

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