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S&P Ups Prudential to Strong Buy

From Standard & Poor's Equity Research

Prudential (PRU) : Ups to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Frank Braden

Prudential shares are very attractive, in our view, given an 11% decline since their high of $80 in April. We believe the recent settlement with various regulatory agencies in connection with market timing activities at Prudential Securities clears up some uncertainty surrounding the stock. We expect strong growth in variable annuity sales following the acquisition of Allstate's (ALL) variable annuity business and see continued ROE expansion on growth in more profitable business lines. Our 12-month target price remains $87.

Dell (DELL) : Reiterates 3 STARS (hold)

Analyst: Richard Stice, CFA

Dell shares are trading lower this morning as the company announces delay of its 10-Q filing due to the ongoing informal SEC investigation. Also, Dell has suspended its share buyback program and postponed its 9/13 analyst meeting. While filing delay is not surprising given the previous acknowledgment of the issue, we are concerned with continuing headline risk and administrative costs. But, given Dell's leading market position, favorable seasonal trends, and with stock trading well below its historical price-to-earnings average, we advise holding existing positions. Our target price is $23.

Commonwealth Telephone Enterprises (CTCO) : Reiterates 5 STARS (strong buy)

Analyst: Todd Rosenbluth

We think shares will open higher today as an unconfirmed WSJ report indicates the rural telecom provider is up for sale, and highlights potential suitors such as private equity firms or other larger rural carriers. In our view, no deal is imminent, but we believe Commonwealth Telephone Enterprises shares are attractive given the company's greater-than-peers access line stability, wider EBITDA margins, and low debt/EBITDA leverage. In addition, we see its strong cash flow generation as providing ample support to a 5.6% dividend yield. Based on our 12-month target price of $44, we contend Commonwealth Telephone Enterprises is undervalued.

Chunghwa Telecom (CHT) : Maintains 4 STARS (buy)

Analyst: Robert Lin

First half 2006 net profit of NT$19.8 billion was below our forecast due to a NT$2.9B compensation cost and an increase in non-operating expenses. We are reducing our 2006 earnings per ADS estimate to $1.42 from $1.50 and 2007's to $1.43 from $1.47 to reflect our expectation of slower growth in mobile services and a faster decline in fixed-line revenue. We believe future growth for Chunghwa Telecom will remain flat, given Taiwan's saturated mobile market. We are lowering our 12-month target price by $2 to $19.

Newell Rubbermaid (NWL) : Maintains 4 STARS (buy)

Analyst: Loran Braverman, CFA

Newell Rubbermaid announced an agreement for the intended sale of its Little Tykes business unit, subject to regulatory approvals. Little Tykes manufactures children's toys, furniture and related items. Financial terms of the agreement were not disclosed, but Newell Rubbermaid said that the operation had 2005 revenues of about $250 million and, its reclassification as a discontinued operation would reduce second half 2006 EPS by an estimated 3 cents to 4 cents. We view Little Tykes as a non-core business for Newell Rubbermaid and believe it has below corporate-average profit margins.

Mesa Air Group (MESA) : Reiterates 2 STARS (sell)

Analyst: Jim Corridore

We expect revenue growth to remain weak and costs to continue rising for Mesa Air Group'a Hawaii GO! service, which we think is likely to remain unprofitable at current fare levels. We are cutting our 2006 EPS estimate to $1.00 from $1.30, and our 2007 estimate to $1.10 from $1.30. We are reducing our 12-month target price to $6.50 from $8, valuing the shares at 6 times our 2007 EPS estimate, below peers to reflect our view that the company is unlikely to see strong revenue or EPS growth unless it wins a new customer for regional jet service.

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