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S&P Upgrades Nordstrom to Buy

Analyst Jason Asaeda cites the stock's 7.6% price decline yesterday. Plus: comments on Cincinnati Financial, Freddie Mac, and more

From Standard & Poor's Equity ResearchNordstrom (JWN) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Jason Asaeda

With yesterday's 7.6% price decline, Nordstrom shares are now trading at an attractive 14% discount to our 12-month target price of $60, in our view. Additionally, we believe the company is well positioned to gain share in the better department store market during fiscal year 2008 (ending Jan.), supported by its well-edited assortment of luxury-focused merchandise, including a broader designer apparel offering, and by superior customer service. We project operating earnings per share (EPS) to rise 17.5% in fiscal year 2008, to $3.00, on healthy 5.5% net sales growth and about a 100 basis points improvement in operating margin.

Cincinnati Financial (CINF) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Cathy Seifert

As shares of this regional property-casualty insurer have fallen about 5% year-to-date, we believe Cincinnati Financial stock is fairly valued and are raising our 12-month target price by $3 to $45. Our outlook on Cincinnati Financial shares remains tempered by our view that the company will likely face heightened competition in many of its core lines and markets in 2007. Our target price assumes the shares will trade at 14.5 times our $3.10 operating EPS estimate for 2007, a premium to most peers, albeit less than the shares had been awarded.

Freddie Mac (FRE) : Reiterates 3 STARS (hold)

Analyst: Stuart Plesser

Freddie Mac announces that it will cease buying subprime loans that have a high likelihood of payment shock. The move was initiated ahead of guidance from banking regulators and may be a tactic by Freddie Mac to placate government regulators still weighing in on whether to limit its retained portfolio. We note that Freddie Mac's pullback from the subprime market may further hurt subprime originators, especially those geared toward the riskiest types of subprime loans. Our 12-month target price remains $70, about 2.1 times book value, in line with Freddie Mac's historical average.

The9 Ltd. (NCTY) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Scott Kessler

The stock fell 14% yesterday, along with many other Chinese shares, and we now see it as attractively valued. The9 Ltd. is one of China's largest online gaming companies, and has been very successful with its World of Warcraft. We expect a new WoW expansion pack to be rolled out within weeks, and also think the company's pipeline of new games is quite strong. According to our estimates and calculations, The9 Ltd. has a price-to-earnings of 20 times, a PE-to-growth ratio of 0.9 times, and trades at a discount to peers. Our 12-month target price is $43. We expect the shares to be volatile in the coming weeks.

Creative Technology (CREAF) : Ups to 2 STARS (sell) from1 STAR (strong sell)

Analyst: Richard Stice

The shares have declined nearly 7% this month. We believe Creative Technology continues to face significant challenges related to its position in the MP3 market. In addition, we are concerned about the company's ongoing trend toward reducing R&D expenditures, though we view this spending as critical to competing in Creative Technology's business. Conversely, we think there is potential for the company to utilize its existing patent portfolio to capture added licensing revenue. Moreover, with the shares trading less than 10% above our 12-month target price of $6, we believe further downside risk is limited.

Public Storage (PSA) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Robert McMillan

Fourth quarter per-share funds from operations of $0.89 vs. $0.96 misses our $0.95 estimate. Although revenues jumped 59% on improvements in Public Storage's core portfolio and gains from the Shurgard acquisition, higher expenses hurt results. On a same-store basis, occupancy dips to 89.4% at the fourth quarter-end from 89.8% last year, while revenue per available square foot rise is 3.3%. We think expenses resulting from the Shurgard deal will be higher than we had expected. We are lowering our 2007 Funds From Operations estimate to $4.06 from $4.14, and we see $4.27 in 2008. We lower our target price to $114 from $116 on price-to-FFO analysis.

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