From Standard & Poor's Equity Research
Wachovia (WB) : Ups to 5 STARS (strong buy) from 4 STARS (buy)
Analyst: Mark Hebeka, CFA
Our upgrade is primarily based on a valuation we see as compelling, along with our view of Wachovia's strong growth prospects and sound business strategy. We believe its focus on customer service, core deposit gathering and de novo branch building should help mitigate a challenging industry environment, and view its relatively high amount of fee-based income and diverse business lines as competitive advantages. We are looking for strong revenue synergies from its proposed acquisition of Golden West (GDW), pending approvals. Our 12-month target price remains $67.
Cognos (COGN) : Cuts to 1 STAR (strong sell) from 3 STARS (hold)
Analyst: Zaineb Bokhari
Cognos sees Aug quarter revenue of $228 million, in line with our estimate, but expects license revenue of $77M-$78M, below our $81M estimate. We are concerned about modest license growth after 3 quarters of Cognos 8 availability. We think competitive pressures from peers and larger vendors may be impacting sales cycles and we are lowering our license growth forecast to 5% from 7%. We are raising our fiscal year 2007 (ending Feb.) earnings per share (EPS) estimate slightly to $1.30 from $1.23, reflecting planned 6% headcount cut. We are lowering our target price by $1 to $30.
TiVo (TIVO): Maintains 5 STARS (strong buy)
Analyst: Tuna Amobi, CPA, CFA
TiVO set a follow-on offering of 8.26 million shares. We are somewhat surprised by the potentially ill-timed move, which would cause about 10% dilution. We are lowering our target price by $2 to $10, based on relative price-to-sales analysis. Still, we see much of the proceeds funding significantly higher subscriber acquisition costs, on additional upfront hardware costs under a new multi-year pricing plan, which could have a net favorable impact on net present value of a subscriber. TiVo has a debt-free balance sheet, and we see working capital aided by deferred revenues.
Devon Energy (DVN): Maintains 5 STARS (strong buy)
Analyst: Charles LaPorta
Devon updated the progress of several lower tertiary trend projects in the deepwater Gulf of Mexico on Sept. 5. The company disclosed that these projects alone have the potential to more than double its reserves, however, production won't begin for 3 to 5 years. In the meantime, further appraisals may reduce the commercially recoverable resource and escalating offshore capital and service costs could reduce profitability. Still, we are raising our target price $10 to $88 to reflect Devon's significant long-term expansion and implied additional net asset value this news suggests.
Hain-Celestial Group (HAIN): Maintains 4 STARS (buy)
Analyst: Richard Joy
June-quarter EPS before special items of 24 cents, vs. 20 cents one year earlier, was one cent above our estimate. Full fiscal 2006 (June) EPS was $1.02 vs. 89 cents. Results benefited from strong consumption trends, distribution gains and higher prices. The company says fiscal 2007 is off to a strong start, and we see sales increasing 20% on more than 10% organic growth and acquisition contributions. We believe Hain shares are attractive given increasing consumer demand for natural foods, strong brand momentum and potential for margin expansion. We are keeping our fiscal 2007 EPS estimate at $1.20. Our 12-month target price is $31.
Corning (GLW): Maintains 3 STARS (hold)
Analysts: Kenneth Leon, CPA, Todd Rosenbluth
As we expected, Corning is experiencing a rebound in end user demand in the second half of 2006 in the liquified crystal display (LCD) flat panel display market. As a result of the improved demand and improvements in its supply chain, the company narrowed the range of its third quarter operating EPS guidance to 24-26 cents from 22-26 cents, consistent with our 24-cent EPS estimate. Corning's revised revenue guidance is slightly higher than our projection, while gross margin guidance is in line with our forecast. We expect the company to report its third quarter results in late October.