Time Warner (TWX) and other filmed entertainment companies: Revises forecast
Analyst: Tuna Amobi, CPA and CFA
After a sharp 8% to 10% drop through the summer, we now see the 2005 worldwide box office down only 3% to 4%. Today's debut of Universal's epic King Kong remake should boost the holiday slate, still riding on solid numbers from Time Warner's Harry Potter and the Goblet of Fire ($660 million worldwide) and, to some extent, Disney's (DIS) Chronicles of Narnia ($111 million). We think this bodes well for healthier 2006 DVD sales for studios, plus the 2006 slate with Mission Impossible 3, Over the Hedge, Pirates of the Caribbean 2, Superman Returns, Ice Age 2, X-Men 3, and the next James Bond, Casino Royale.
Equity Office Properties (EOP): Cuts to 1 STAR (strong sell) from 2 STARS (sell)
Analyst: Raymond Mathis
Equity Office Properties announced a 34% reduction in its stated common dividend, to 33 cents per quarter from 50 cents. It also provided its initial 2006 earnings guidance, seeing per-share funds from operations of $2.15 to $2.30. The midpoint of the guidance range is above our $2.15 funds from operations estimate, but below the Street's $2.25. We expect Equity Office Properties's shares to trade lower on this news. We are cutting our weighted-average 12-month target price by $4 to $24.
FPL Group (FPL) : Reiterates 5 STARS (strong buy)
Analyst: Justin McCann
We would remain cautious on today's unconfirmed New York Times report that FPL is in advanced talks to acquire Constellation Energy Group (CEG) for more than $11 billion. Given the double-digit earnings growth expected from Constellation Energy Group's energy merchant operations, we would view a combination positively. Combined with the strong growth we see for FPL's own independent power unit, we think a Constellation Energy Group merger would create one of the strongest power companies in the U.S. On its own, we still view FPL shares as very attractive. Our 12-month target price remains $52.
ADC Telecommunications (ADCT) : Reiterates 3 STARS (hold)
Analyst: Ari Bensinger
Before special charges, ADC posted October quarter earnings per share (EPS) of 18 cents vs. 16 cents, in line with the previously lowered guidance range given at the beginning of October. ADC guides for fiscal year 2006 (ending October) sales of $1.28 billion to $1.35 billion with operating EPS at 95 cents to $1.15, in line with our estimates. We view ADC as well positioned to benefit from increased telecom spending on the access portion of the network. However, we are wary of the uneven sales growth that we see in new product segments of fiber-to-the-premise and wireless, based on their limited customer base.
E.ON (EON): Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Michael Wilson
Following the recent rise in price, we believe the American Depositary Shares are fairly valued. We believe the rise primarily reflected the rejection by Scottish Power (SPI) of E.ON's acquisition offer, which, in our view, had led to a decline in the price of the American Depositary Shares. We expect German regulators to begin exerting downward pressure on network access fees in Germany, and believe this could restrict the performance of the American Depositary Shares. Reflecting the recent exchange rate to the euro, our earnings per ADS estimates are $2.36 for 2005 and $3.06 for 2006. Our 12-month target price remains $34.
CACI International (CAI): Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Dylan Cathers
Our downgrade is based on valuation, as CACI International rises 14% this morning and is near our target price. We think the increase is related to news that General Dynamics (GD) agrees to buy Anteon (ANT), pending approvals. We view the proposed deal as a further sign of continuing interest by defense contractors to diversify into IT services in order to provide outsourcing to the U.S. government's defense, intelligence, and homeland security agencies. In fiscal year 2005 (ending June), 73% of CACI International's revenue came from Defense Department contracts. Our 12-month target price stays $65.
Glimcher Realty Trust (GRT): Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Robert McMillan
After recent gains, shares of Glimcher Realty Trust have passed our $25 12-month target price. Although we expect the company's operating trends to continue to improve, driven by expanding economic growth and healthy demand for retail space, which we think should be beneficial to both occupancy levels and rent growth, we believe the shares are fairly valued and would not add to positions. We are maintaining our 12-month target price of $25. Our 2005 and 2006 funds from operations per share estimates remain $1.99 and $2.41, respectively. Glimcher Realty Trust shares' dividend yield is 7.3%.