Capital One Financial (COF): Reiterates 5 STARS (strong buy)
Hibernia (HIB):Reiterates 3 STARS (hold)
Analysts: Mark Hebeka, CFA and Jason Seo, CFA
Capital One announces that the pending acquisition of the New Orleans-based Hibernia will be delayed and is now scheduled for September 7. Both parties mutually agreed to the delay in order to assess the damage cased by Hurricane Katrina. We continue to view the pending transaction positively, but remain cautious until a full assessment of the damage is complete. While this might cause short to mid-term challenges, we also look for long-term opportunities as New Orleans begins to rebuild. We are maintaining our 12-month target price of $95 on Capital One.
We believe the long-term fundamentals remain sound for Hibernia. Our 12-month target price remains $36.
BellSouth (BLS ): Maintains 2 STARS (sell)
Analyst: Todd Rosenbluth
Late yesterday, BellSouth said 1.75 million of its local access lines, or about 8.5% of its total lines, have been affected by Hurricane Katrina. While it is difficult for us to quantify the impact to the company's operations at this early stage given the needed rebuilding effort, we compare it to the 5 cent per share charges that the Southeastern U.S. telecom incurred during 2004's hurricane season that had affected 1.2 million customers. We also believe the hurricane will result in lost revenues for BellSouth from damaged access and broadband lines. Our 12-month target price remains $25.
Plains All-American (PAA): Reiterates 3 STARS (hold)
Analyst: Royal Shepard
Plains All-American completed a preliminary damage assessment from Hurricane Katrina on its Gulf Coast assets. While ship docking facilities were lost at the Mobile Bay terminal, the partnership believes that the terminal will be fully operational once electrical power is restored. Plains All-American also expects that any damage will be covered by insurance. Until further information becomes available, we are maintaining our 2005 earnings estimate of $2.35 per unit. Our $47 12-month target price is based on relative peer and discounted cash flow valuations.
Chiron (CHIR): Maintains 3 STARS (hold)
Analyst: Frank DiLorenzo
Novartis (NVS ) plans to buy the rest of its outstanding shares in Chiron for $40 cash per share, or about $4.5 billion in total. We think this makes strategic sense. We believe that buying at about 4 times our 2005 revenue estimates using $40 cash per share is fair, considering that Chiron has been a low-growth story. However, we think the bid could go higher on synergies and negotiation. Chiron trades at about 1.5 times our 2006 earnings per share estimate of $1.65, above the peer average of 1.4 times. We think the slight premium is possibly due to a buyout offer, and as a result our 12-month target price rises to $44 from $38.
Kinder Morgan Energy (KMP): Maintains 4 STARS (buy)
Analyst: Royal Shepard
Kinder Morgan Energy reported that about 25% of its capacity has been restored on its 51%-owned Plantation Pipeline, a refined products pipeline serving the southeastern United States. No physical damage occurred as a result of Hurricane Katrina. However, full operation will depend on the restoration of power to its Collins, Mississippi pump station. The financial impact, if material, might not become evident for a few weeks. In the meantime, we are maintaining our 2005 estimate of $2.30 per limited partnership unit. Our 12-month target price remains $59, based on relative peer and discounted cash flow valuations.
Rockwell Automation (ROK): Reiterates 3 STARS (hold)
Analyst: John F. Hingher, CFA
Rockwell announced it has acquired the motor repair and motor management business of Quality Rewind & Electric. Terms of the deal were not disclosed. We view this transaction as a strategic positive, as it broadens Rockwell's offering in the growing Canadian "oil sands" market. Our fiscal year 2005 (ending September) and fiscal year 2006 earnings per share estimates remain $2.65 and $3.05, respectively. Rockwell is trading at 18 times our forward 12-month earnings per share estimate, above its peer-group average of 16 times but in line with its historical average. Our 12-month target price stays at $53.
CNOOC (CEO):Maintains 3 STARS (hold)
Analyst: Lorraine Tan
CNOOC's first half earnings increased by 69% from the year-earlier period and was in line with our estimate. The chinese oil producer's average crude selling price was 2% below our assumption, but this was offset by recent increases resulting in no change to our earnings per share estimates or target price. The company's guidance indicates that our full year targets remain intact. We think share price performance is at risk from ongoing structural reforms in China's domestic stock market. The reforms affect the transfer of currently non-tradable shares into tradable shares, and this may dampen sentiment for China issues.
First Data (FDC): Reiterates 2 STARS (sell)
Analyst: Scott Kessler
First Data announced that Jim Schoedinger, the president of its Card Issuing Services segment, will be departing. Schoedinger joined First Data in that role in early 2004; his predecessor left the position in March 2003. We think today's news is a negative, especially in light of the card segment's recent struggles. In the second quarter the card issuing services business accounted for 22% of First Data's segment revenues, and it posted no growth and a 12% decline in operating profit. We think that while First Data might explore the sale of this business, such a deal would not command a value attractive to First Data.