Plus: Analyst opinions on Sirius Satellite Radio, Procter & Gamble, Qwest Communications, and more
From Standard & Poor's Equity ResearchKroger (KR)
Downgrades to 3 STARS (hold) from 4 STARS (buy)
Analyst: Joseph Agnese
The downgrade is based on valuation. Kroger shares are approaching our 12-month target price of $30, which is based on our discounted cash-flow and price-to-earnings analyses. We continue to expect identical-store sales growth in the mid-single digits, reflecting market-share gains resulting from the company's efforts to improve merchandising and service offerings. We believe margins will be pressured by competitive pricing and increased promotional spending. We expect net interest expense to improve as increased asset ownership leads to reduced rent expense. We are keeping our fiscal 2008 (ending January) EPS estimate of $1.63.
Sirius Satellite Radio (SIRI)
Maintains 3 STARS (hold)
Analysts: Tuna Amobi, CFA, CPA; Thomas Graves, CFA
The company's first quarter loss of 10 cents per share, vs. a loss of 33 cents one year earlier, is close to our estimate. Stock-based compensation fell sharply to 2 cents a share vs. 20 cents. Also, we see operating leverage on the 61% revenue rise. We think the slowdown in net subscriber additions from the retail segment was largely due to the year-ago impact of the addition of Howard Stern's program. Sirius says it is looking for its pending merger with XM Satellite Radio (XMSR) to occur by 2007 yearend. However, we are cautious on the regulatory outlook for the deal. We are keeping our target price at $4.50, based on relative enterprise value/sales.
Procter & Gamble (PG)
Maintains 5 STARS (strong buy)
Analyst: Loran Braverman, CFA
P&G reports March-quarter EPS of 74 cents vs. 63 cents, in line with our estimate. Sales rose 8%, driven by double-digit organic volume growth in developing regions. Overall, organic volume rose 6%, about 1% above our forecast, but was offset by commodity costs and SG&A expenses that were slightly higher than we had forecasted. We are maintaining our full-year fiscal 2007 (ending June) EPS estimate of $3.03, which is at the high end of management's guidance of $3.01-$3.03. We are also maintaining our p-e-based 12-month target price of $77.
Qwest Communications (Q)
Maintains 2 STARS (sell)
Analyst: Todd Rosenbluth
Qwest posts first quarter EPS of 12 cents vs. 5 cents, above our 7 cents estimate. We believe the difference was due to a 4 cents benefit from lower depreciation and a one cent benefit from lower taxes. Revenues were slightly below our projection and EBITDA was in line. Q's access line count declined 6.8% amid competitive pressure and was somewhat offset by solid DSL customer growth. Unlike peers, the company is not receiving much benefit from wireless operations and is dependent upon wireline voice. We look to the morning call to understand what cost-cutting measures were taken to improve EBITDA margins.
Chevron Corp. CVX
Reiterates 4 STARS (buy)
Analyst: Tina Vital and Stewart Glickman
First quarter EPS of $1.86 before a one-time $0.32 gain from the sale of some international downstream assets, vs. year-ago $1.80, is $0.33 above our estimate. Results were led by higher average margins for refined products, partly offset by lower refined product volumes as well as lower crude oil prices in the upstream segment. Total boe/d production was flat vs. a year ago. We are raising our 2007 EPS estimate by $1.22 to $7.73, and 2008's by $0.88 to $7.90. Assuming a discount-to-peers 5.9 times multiple on estimated 2008 EBITDA, and our DCF model, we lift our 12-month target price $3 to $88.
Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Robert McMillan
First quarter per-share funds from operations of $1.25 vs $0.89 tops our $1.25 estimate, in large part due to contributions from acquisitions and the property funds business. We see rising global trade levels fueling increased demand for Prologis's distribution facilities and services. At the first quarter's end, 95.4% of Prologis's stabilized portfolio was leased, up from 94.3% at the fourth quarter-end, while same-store rents rose 6.9%, suggesting improving market conditions. We keep our 2007 Funds From Operations estimate at $4.11 and raise 2008's to $4.77 from $4.48; but lower our target price by $2 to $72, on updated price-to-FFO analysis.