Analyst Richard Stice notes that some uncertainties are getting cleared up. Plus: analyst comments on Goodyear, AT&T, and more
From Standard & Poor's Equity ResearchApple Computer (AAPL): Ups to 5 STARS (strong buy) from 4 STARS (buy)
Analyst: Richard Stice, CFA
Shares are higher in pre-market trading as Apple files its 10-K and details of its stock option backdating investigation. After an extensive review, the company is restating results to reflect $84 million in non cash charges. Apple also acknowledges that in certain cases, CEO Steve Jobs had knowledge of favorable grant dates. While the entire scenario is cause for concern, we believe these formal disclosures will help alleviate lingering uncertainty for the company. Moreover, we think fundamental business drivers remain intact. Our 12-month target price remains $110.
Goodyear Tire & Rubber (GT): Reiterates 3 STARS (hold)
Analyst: Efraim Levy, CFA
Although we expect the recently resolved strike against the company will hurt its fourth quarter results, we do think that the agreement with the United Steel Workers union will improve Goodyear's financial health and enhance future profitability. Based on the company's expectations that the agreement will reduce its costs by $70 million in 2007 and by even more in 2008 and 2009, we are raising our 2007 earnings per share (EPS) estimate by $0.19, to $1.66. We are raising our 12-month target price by $3, to $22.
AT&T (T): Maintains 3 STARS (hold)
Analyst: Todd Rosenbluth
We believe AT&T is finally close to receiving an FCC okay on its pending purchase of BellSouth (BLS), meeting its year-end merger-completion goal. In our view, the concessions offered, which include a freeze for a time in low-speed DSL service pricing in its territory, agreeing to price caps of business customer lines, observing principles to treat Internet content equally, and further deploying fiber in the BellSouth territory, should be viewed favorably by the FCC and only modestly hurt AT&T's profitability. However, we think AT&T's valuation already reflects near-term merger closing.
Tractor Supply (TSCO) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Michael Souers
Tractor Supply shares have fallen approximately 15% over the past two months and now trade well below our $54 12-month target price. We expect strong sales growth over the next 3 to 5 years for this farm and ranch retailer, bolstered by management's commitment to 13% annual square footage growth. In addition, we think gross margin drivers such as private label and direct sourcing initiatives should lead to robust earnings growth. Trading at 17 times our 2007 EPS estimate of $2.68, we would buy Tractor Supply.
Marsh & McLennan (MMC) : Reiterates 4 STARS (buy)
Analyst: Royal Shepard
According to unconfirmed report in the Wall Street Journal, Marsh & McLennan agrees to sell its Putnam Investments unit to Power Corp. of Canada for $3.9B. We think any agreement will be subject to approvals including by Putnam employees and mutual fund shareholders. But we would have a favorable view of a sale, providing Marsh & McLennan with a chance to intensify focus on brokerage and risk management operations. We are raising our target price by $1, to $35, or 19 times our 2007 EPS est of $1.85, a premium to peers to reflect what we see as Marsh & McLennan's leading market position and improving earnings visibility.
Goodyear Tire (GT) : Reiterates 3 STARS (hold)
Analyst: Efraim Levy, CFA
Although we expect the recently resolved strike against the company hurt fourth quarter results, we do think that the agreement with the United Steel Workers union will improve Goodyear's financial health and enhance future profitability. Based on the company's expectations that the agreement will reduce its costs by $70 million in 2007 and by even more in 2008 and 2009, we are raising our 2007 EPS estimate by $0.19, to $1.66. Based on a P/E of about 13 times that estimate, in the middle of Goodyear's recent historical range, we are raising our 12-month target price by $3, to $22.