From Standard & Poor's Equity Research
Medical Equipment Stocks (BSX): Lowers Outlook To Negative From Neutral
Analyst: Robert Gold
In our view, the S&P Healthcare Equipment sub-industry faces challenging growth conditions through 2007, with slowing procedure growth evident in key categories, including cardiac rhythm management and vascular intervention. We further expect that reimbursement rate pressures from both Medicare and within some important overseas markets will rise in coming years, and see fewer new blockbuster products on the horizon. In our view, the equipment stocks have lost some of their defensive appeal, and we think above-market valuations are vulnerable amid slowing industry-wide growth.
McDonald's (MCD) : Cuts to 3 STARS (hold) from 5 STARS (strong buy)
Analyst: Dennis Milton
McDonald's shares have risen approximately 25% from an intermediate low reached in June 2006, due, in our view, to strengthening international sales and interest in the company's impending spinoff of its ownership interest in Chipotle Mexican Grill (CMG). At 17 times our 2006 EPS estimate of $2.33, shares now trade in line with peers. While we remain impressed with McDonald's execution of its "Plan to Win" operating plan, we believe the valuation is appropriate given our view that its long-term growth prospects are relatively limited. Our 12-month target price remains $44.
Nuveen Investments (JNC) : Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Frank Braden
Nuveen Investments continues to benefit from its strong reputation and focus on fixed income securities. But with its shares up nearly 25% since mid-July, we now view Nuveen Investments as fairly valued. We expect strong growth in institutional, high net worth, and separately managed retail accounts in 2006; this should be driven by continued client inflows into its NWQ value equity and global portfolios and Symphony alternative investment products, as well as new product introductions. We are maintaining our 2006 EPS estimate at $2.35, and our 12-month target price remains $57, 24.3 times that estimate.
Jabil Circuit (JBL)
Reiterates 4 STARS (buy)
Analyst: Richard Stice, CFA
Shares were up 9% in pre-market trading Wednesday as Jabil reports an August-quarter revenue increase of 45%, above our 40% estimate. Financial data was limited due to an ongoing probe related to past stock option grants. Still, we are raising our fiscal 2007 (ending August) EPS estimate by 2 cents to $1.77, and our
discounted cash-flow and relative p-e-to-growth based 12-month target price by $4 to $36. While the stock option issue somewhat limits our enthusiasm, we believe Jabil continues to gain market share in the electronics manufacturing services industry and is well positioned to take advantage of the growing outsourcing trend.
Commerce Bancorp (CBH)
Downgrades to 3 STARS (hold) from 4 STARS (buy)
Analyst: Christopher Muir
The downgrade is based on valuation. Commerce shares have risen 2.9% since June 30, compared to a 4.3% rise for the S&P Regional Banks index. We continue to believe the company has a superior business model relative to peers, and we see continued strong earning asset and deposit growth as it expands its branch network through openings in new, as well as existing service territories. As a result, we expect 5-year cumulative average EPS growth of 17%. However, we think our $38 12-month target price adequately reflects this growth. Our 2006 and 2007 EPS estimates remain $1.69 and $2.09, respectively.
Flat Panel Display Companies (Corning [GLW
]; AU Optronics [AUO
Maintains positive outlook on group
Analyst: Kenneth Leon, CPA
Samsung Electronics is the second flat panel display supplier to support a recovery in the TFT-LCD panel market. Earlier this month, 3 STARS-ranked Corning said it sees a rebound in end-user demand in the second half of 2006, in which the industry last year shipped near 70% of total displays. Samsung expects panel pricing to stabilize in the fourth quarter for panels 40 inches or larger. We see the recent strong flat panel TV sales results for Best Buy (BBY
; 4 STARS) and Circuit City (CC
; 3 STARS) as a positive sign for display vendors. We favor 4 STARS-ranked AU Optronics in the panel display group.