Plus: Analyst opinions on Bank of America, Pacific Ethanol, Brilliance China Automotive, and more
From Standard & Poor's Equity ResearchTiffany (TIF)
Maintains 3 STARS (hold)
Analyst: Esther Kwon, CFA
We find Tiffany's prestige brand positioning
and international growth opportunity very attractive. We believe activist investor Nelson Peltz's interest in Tiffany, its real estate assets, and its open repurchase authorization for over 10% of the shares provide support to the stock. However, we remain cautious on
high precious metal prices, continuing mix shift to higher-priced, lower-margin jewelry and consumer weakness in Japan. We are raising
our 12-month target price to $53 from $47 to incorporate an average long-term forward p-e of 25 times on our $2.11 fiscal 2008 (ending January) EPS estimate.
Bank of America (BAC)
Reiterates 5 STARS (strong buy)
Analyst: Frank Braden
In a deal we believe was mostly expected by the investment community, BofA agrees to acquire LaSalle Bank from ABN AMRO (ABN) for $21 billion in cash, with a $5 billion rebate of excess capital to BofA. The deal is expected to be immediately accretive to EPS and BofA sees $400 million in annual after-tax cost savings in 2008, and $800 million in 2009. We believe the deal would provide BofA with a strong presence in the attractive Chicago market and we expect the company's experience in similar transactions, such as the acquisition of Fleet Financial, will add to the likelihood of a successful integration.
Affiliated Computer Services (ACS)
Reiterates 3 STARS (hold)
Analysts: Dylan Cathers, Jawahar Hingorani
CEO Darwin Deason and Cerberus Capital Management LP raised their buyout offer for ACS to $62 per share from $59.25 after the earlier bid was rejected by the ACS board. Lawsuits alleged that the prior offer was inadequate and resulted from an unfair process, but we think the new offer could merit consideration by the company's board and shareholders. Our hold recommendation is based on our belief that a deal is closer to consummation, given the board's past attempts at selling the company. We keep our 12-month target price at $61, 19 times our calendar 2007 EPS estimate of $3.19, in line with peers.
Brilliance China Automotive (CBA)
Reiterates 5 STARS (strong buy) on American Depositary Shares
Analyst: Alison Seng
The company's 2006 loss narrows to 398.4 million yuan from a loss of 649.6 million yuan in 2005. Though revenue grew 91.7% to 10.5 billion yuan, 6.3% above our forecast, the loss was substantially wider than our projected loss of 128.9 million yuan, reflecting lower-than-expected margins. However, we continue to expect Brilliance China to turn profitable in 2007 on increased sales volume and better cost management. We are lowering our 2007 earnings per ADS estimate to 38 cents from 77 cents and 2008's to 64 cents from $1.15. But we are keeping our 12-month target price at $32, based on 1.5 times our forecast of 2007 book value per share.
Cuts to 2 STARS (sell) from 3 STARS (hold)
Analyst: Stuart Benway
Domestic demand for corrugated boxes has been relatively weak in recent weeks. At the same time, costs for recycled fiber have surged in 2007 and, in April, were up nearly 50% from a year ago while prices for linerboard have been unchanged for a year. Although we expect overseas demand to remain healthy, we think conditions overall will make for a difficult earnings environment for Smurfit-Stone. Accordingly, we are reducing our 2007 EPS estimate to $0.25 from $0.40 and also are cutting our 2008 forecast to $0.60 from $0.80. We are maintaining our 12-month target price of $11.
MDU Resources Group (MDU)
Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Christopher Muir
MDU Resources Group reports first quarter operating EPS of $0.23 vs. $0.29, $0.03 below our estimate. While revenues from the natural gas and oil production segment were better than expected, construction materials and mining and construction services were worse. Also, lower fuel prices were more than offset by rising operations and maintenance costs and depreciation and amortization expense. We are reducing our 2007 EPS estimate by $0.05 to $1.77, still above MDU Resources Group's newly increased guidance of $1.55 to $1.75, and our 2008 estimate by $0.01 to $1.94. We are maintaining our 12-month target price of $33.
Pacific Ethanol (PEIX)
Starts at 3 STARS (hold)
Analyst: Tina Vital
Pacific Ethanol aims to become the leading marketer and producer of renewable fuels in the western U.S., and has plans to expand its ethanol production capacity from current levels near 35 million gallons to 420 million gallons by year-end 2010. We estimate breakeven operating results for the first quarter, but full-year 2007 operating EPS at $0.37, and 2008's at $1.09. Blending our DCF and relative valuations leads us to our 12-month target price of $18. This represents an expected enterprise value of 6.7 times our 2008 EBITDA estimate, in line with peers.