From Standard & Poor's Equity Research
Altria Group (MO) : Reiterates 5 STARS (strong buy)
Analyst: Raymond Mathis
The Florida Supreme Court has ruled in favor of tobacco companies in the class-action Engle case. The judgment upheld a lower court's ruling reversing a $145 billion punitive damage award, and decertified the class. We see shares of Altria Group potentially benefiting from the ruling more than others. The Engle case represented one of the major hurdles in Altria Group's plan to restructure its domestic and international tobacco and packaged food businesses into two or three stand-alone entities. We are raising our 12-month target price by $5 to $90.
Forest Oil (FST) : Cuts to 3 STARS (hold) from 4 STARS (buy)
We endorse Forest Oil's recently completed sale of Gulf of Mexico assets in order to focus on onshore natural gas development core competency. We note that the recent rally in its share price came on the heels of significant mergers and acquisitions announcements in the sector. We acknowledge that Forest Oil could be a takeover candidate, given its position in some emerging prolific basins, but we believe the shares are appropriately valued on a stand-alone basis. Our 12-month target price of $34 reflects an enterprise value 4 times our estimate of 2007 EBITDA, in line with small-cap onshore peers.
Posco (PKX) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Leo Larkin
We estimate earnings per ADS of $8.42 in 2006 vs. 2005's $12.57, amid a 6% decline in revenues. But with dividends currently yielding above 2.5% and its ADSs selling at 7.8 times our 2006 earnings per ADS estimate, we believe Posco is attractive. Given its low debt level and low production costs relative to its international peers, we believe Posco deserves to sell at about 9 times our 2006 estimate, which is at the mid-point of its historical range and more in line with its foreign rivals. On that basis, we have increased our 12-month target price to $77 from $66.
International Speedway (ISCA) : Ups to 3 STARS (hold) from 2 STARS (sell)
Analyst: L. Braverman, CFA
International Speedway reports May quarter earnings per share (EPS) of 58 cents vs. 50 cents, in line with our estimate. Higher-than-projected expenses were offset by a lower-than-expected tax rate. We are lowering our fiscal year 2006 (ending Nov.) EPS by 8 cents to $3.21 and fiscal year 2007's by 3 cents to $3.29 due primarily to disappointing revenues early in the August quarter at Michigan and Daytona race tracks. Nonetheless, we are raising our recommendation on the shares to hold based on their valuation. The stock price, traded at around $45.78 on Thursday, below our earlier 12-month target price of $49. This makes a sell recommendation no longer appropriate for the stock. We are lowering our 12-month target price by $1 to $48.
WPS Resources (WPS) : Maintains 3 STARS (hold)
An unconfirmed Wall Street Journal article says WPS is in advanced discussions with Peoples Energy (PGL) to create a midsize energy firm in the Midwest. We concur with the WSJ that merger synergies would create opportunities to cut costs. We believe WPS is the more diversified of the two with power plants, distribution systems, and utilities. At yesterday's closing price, Peoples Energy had a market capitalization of $1.38 billion, and the company also carries about $1 billion in debt. With WPS's market capitalization near $2 billion, we see any potential deal as a merger of equals.
eBay (EBAY) : Reiterates 5 STARS (strong buy)
eBay announces that PayPal President Jeff Jordan will leave the company in the fall to spend more time with his family. Jordan, who joined eBay in 1999, has been an important member of the executive team. However, we think eBay has an extremely deep and talented management bench. Former CFO and current Skype President Rajiv Dutta will assume Jordan's role and Skype VP and long-time eBay executive Alex Kazin will become Skype's President. eBay also announced that the President and CEO of Shopping.com, Lorrie Norrington, has become the President of eBay International.