From Standard & Poor's Equity ResearchPACIFIC CREST CUTS ESTIMATES, TARGET; KEEPS OUTPERFORM ON GOOGLE
Pacific Crest analyst Steve Weinstein says Google's (GOOG) $3.90 billion second quarter net revenue was $15 million above his forecast on upside in licensing revenue; $1.85 billion operating income $27 million above his estimate on slightly better gross margin, but EPS $0.01 is below his forecast because of a $90 million shortfall in interest income.
Weinstein says paid-click growth stabilized, ending period of significant deceleration resulting from changes in query growth and quality improvements. He cuts second half interest income estimate. He lowers $20.06 2008 EPS estimate to $19.83 and $25.27 for 2009 to $24.65.
He also cuts $675 target to $615 to reflect lower EPS. He continues to be a buyer of GOOG shares and believes trends remain very strong and reflect market share gains and economic resliency.
STIFEL NICOLAUS DOWNGRADES OVERSTOCK.COM TO SELL FROM HOLD
Stifel Nicolaus analyst Scott Devitt says Overstock.com (OSTK) trades at 21 times 2009 EBITDA (before open), the highest multiple in the group. He notes that the company had two consecutive quarters of mid-20% growth but it faced easy comps that may normalize in the second half of 2008. He expects mid-20% revenue growth could drop to low- to mid-teens by 2009.
Devitt says investors believe OSTK is doing well for same reasons TJ Maxx (TJX) is doing well, but OSTK transitioned away from excess market two years ago and sells more traditional retail merchandise in its current form. He says OSTK's model, while improved and stabilized, may never achieve operating margins above 2%-3% at scale.
He believes the shares have risk to $20 level, or 15 times EBITDA level, still above the peer group.
JEFFERIES DOWNGRADES GILEAD SCIENCES TO HOLD FROM BUY
Jefferies analyst Eun Yang says Gilead Sciences (GILD) second quarter GAAP EPS of $0.46 is $0.02 below her view. She notes that without favorable forex impact, total product sales of $1.217 billion would have been closer to/slightly below her/consensus estimates of $1.176/$1.184 billion.
Given the maturity of GILD's core HIV franchise, Yang expects HIV drug sales growth (excluding Sustiva) in out years to be much tamer (estimated average year-over-year growth of about 15% in 2009 and beyond) vs. 35%-plus annual growth in 2004-2007.
While she thinks GILD shares remain a safe haven in turbulent markets, safety's at premium. GILD shares are trading at about 28% p-e premium to peers. Given its premium valuation and apparent lack of growth catalysts, she sees limited significant upside from here.