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S&P Picks and Pans: Apple, Palm, Cadence, Qiagen

From Standard & Poor's Equity ResearchApple Inc. (AAPL)

Reiterates 4 STARS (buy)

Analyst: Scott Kessler

In television commercials that began airing June 3, Apple confirms the iPhone is "Coming June 29." We believe the product will be available at Apple and AT&T (T) retail locations and online by that date. The 3 iPhone commercials, accessible on Apple's website, make a strong statement about the product's appealing features, ease of use, and cachet. We think this product will be successful in terms of sales and attracting traffic and customers to Apple's stores and website. We expect the associated buzz to build over the next few weeks. Our target price remains $135.

Palm Inc. (PALM)

Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Kenneth Leon, CPA

Palm announces a new strategic agreement with Elevation Partners, a private equity firm, which will invest $325 million in Palm for a 25% ownership interest. In a recapitalization of its balance sheet, Palm will use the new proceeds, along with existing cash and $400 million in new debt, to fund a $940 million cash distribution to existing stockholders. Elevation will bring strong technology experience to Palm, with personnel that led Apple Inc.'s iPod division. Based on a slight premium to peers on p-e, and with today's deal, we are lifting our target price to $18 from $15.

Cadence Design (CDNS)

Maintains 3 STARS (hold)

Analyst: Jim Yin

Shares are trading significantly higher this morning following an unconfirmed report by The New York Times that Cadence is in talks with at least two private equity buyout firms about a possible sale. While we cannot substantiate the report, we believe there is a possibility of a deal, as Cadence fits the profile of most companies that have been taken private. In our opinion, Cadence has a strong management team, a well-established customer base and steady predictable, recurring revenues. We are maintaining our hold recommendation.

Qiagen (QGEN)

Upgrades to 3 STARS (hold) from 1 STARS (strong sell)

Analyst: S. Matsubara

Qiagen offers to buy Digene (DIGE) for $1.6 billion in cash and stock, subject to approvals, in a deal that would broaden the company's reach into the diagnostics markets by adding Digene's HPV (human papillomavirus) test. HPV has been shown to be highly correlated with cervical cancer. We think the combined entity will have over $350 million in annual molecular diagnostic sales, and Qiagen believes total combined sales will exceed $800 million in 2008, with immediate operating EPS accretion. Based on expected growth acceleration and our view of strategic deal merits, we lift our target price by $4 to $18.

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