Cisco Systems (CSCO ): Downgraded to 4 STARS (accumulate) from 5 STARS (buy)
Analyst: Megan Graham-Hackett
Cisco posted July-quarter pro forma earnings per share of 21 cents, vs. 15 cents one year earlier, above our 20-cent estimate, on 26% revenue growth and lower costs vs. our model. However, Cisco didn't make the progress we expected in cutting inventories. The company saw strength in U.S. enterprise and commercial orders in the July-quarter, but it sees Oct.-quarter revenue up 0% to 2% from the July period, a bit below our model. We are keeping our fiscal 2005 (ending July) earnings per share estimate at 81 cents. Our S&P Core earnings per share estimate is 53 cents, reflecting our stock option expense estimate. Given Cisco's more cautious outlook and based on the slightly lower free cash-flow growth assumed in our discounted cash-flow model, we are lowering our target price to $25 from $36.
GlobalSantaFe (GSF ): Reiterates 4 STARS (accumulate)
Analyst: Stewart Glickman
On Aug. 10, one of the company's jackup rigs, the Adriatic IV, sank in 276 feet of water in the Mediterranean as a result of a fire. All personnel were safely evacuated. The rig, which was contracted at a rate of $58,000 per day through early 2005, had a book value of $16 million at the end of July but should yield $40 million in insurance proceeds net of the deductible, which more than covers the lost drilling income, in our view. Based on a 12X multiple to projected 2005 EBITDA, slightly above expectations for the peer group average, our 12-month target price for GlobalSantaFe remains $30.
AGL Resources (ATG ): Reiterates 3 STARS (hold)
Analyst: Craig Shere, CFA
We are raising our earnings per share estimates for 2004 to $2.07 (excluding 3 cents in second-quarter asset sale gains) from $2.05, and for 2005 to $2.25 from $2.10. We see the pending acquisitions of NUI Corp. (NUI ), a gas storage facility, and a 250-mile pipeline adding to 2004 and 2005 results. We also see higher 2005 utility rates and a recovery in Sequent trading income (due to greater gas price volatility). Assuming appreciation in line with our expected 5% long-term earnings per share growth, we are raising our target price to $31 from $30. We view the shares, priced below peers on a p-e basis, and above them based on price-to-book, as fairly valued.