S&P: Hold Boeing after CEO Ouster

Analyst Robert Friedman says the move should have little impact on the contractor's long-term value. Plus: Opinions on Qualcomm, Berkshire Hathaway, and more

Boeing (BA ): Reiterates 3 STARS (hold)

Analyst: Robert Friedman, CPA

Despite CEO Stonecipher's ouster for conducting an alleged affair with a female Boeing executive, we would advise Boeing investors to continue holding the shares as we think this incident should have little impact on Boeing's long-term intrinsic value. We believe that the company's primary airline and Pentagon customers will continue to buy its planes and defense weaponry based on their performance and price. We still forecast that Boeing will be able to generate 10-year free cash flow growth rates of 6% to 7% and return on equity of 13%, leading to our discounted-cash-flow-based 12-month target price of $58.

Qualcomm (QCOM ): Reiterates 5 STARS (strong buy)

Analyst: Kenneth Leon, CPA

Qualcomm raises March-quarter earnings per share guidance range by a penny to 26 cents to 28 cents, citing stronger demand for CDMA chipsets. Our earnings per share estimate is 28 cents. The company is expecting phone chip shipments of 36 million to 37 million, a 1 million increase from its prior forecast. Our March-quarter chipset estimate is 37 million. With most telecom equipment suppliers cautious for the current quarter, we see Qualcomm's raised guidance as a positive sign for global demand for wireless handsets, especially from 3G-based CDMA networks. With net margins of 34% and $8 billion in net cash and, in our view, growing faster than peers, we find the shares attractive.

Berkshire Hathaway (BRK.A ): Reiterates 3 STARS (hold)

Analyst: Catherine Seifert

Berkshire Hathaway reports $3283.44 2004 operating earnings per share, vs. $3531.32. Results were mixed, in our view. The company's Geico unit benefited from favorable industry-wide loss trends but General Re saw both its premium base and underwriting results deteriorate. We are keeping our $3900 2005 operating earnings per share estimate. We applaud Berkshire Hathaway for addressing the succession issue, but remain concerned over the regulatory uncertainty at General Re. We are raising our 12-month target price to $100,000 from $98,000, which assumes the shares trade at 1.6 times our estimated year-end 2005 book value of $61,965.

HSBC Holdings (HBC ): Maintains 3 STARS (hold)

Analyst: Derek Chambers, James Peters, CFA

HSBC posted 2004 earnings per ADS of $5.43, vs. $4.21, 19 cents lower than our forecast. Operating earnings before goodwill and one-time gains rose 33% to $18.3 billion, although costs were higher than expected due, in part, to business expansion spending. Incorporating the new International Financial Reporting Standards, and before goodwill amortization, we are raising our 2005 earnings per ADS estimate to $6.25 from $5.77, and introducing a $6.85 estimate for 2006. Based on a premium to peer p-e multiple of 12.6 times our 2006 estimate, we are lowering our 12-month target price to $86 from $88.

Texas Instruments (TXN ): Reiterates 3 STARS (hold)

Analyst: Amrit Tewary

Ahead of Texas Instrument's first-quarter mid-quarter update, we expect the company to narrow its revenue guidance range of flat-to-down 8% sequentially. We see first-quarter sales down 4% from fourth-quarter, as some distributor customers continue to work off inventory. Also, following a $100 million reduction in its own inventory in fourth-quarter, we expect Texas Instrument's inventory to trend higher in first-quarter due to an increase in work-in-process inventory. We see first-quarter earnings per share of 24 cents and $1.11 for full 2005 earnings per share. Given the recent increases in peer valuations, we are raising our target price by $3 to $30, based on p-e and price-to-sales analyses.

Capital One Financial (COF ): Reiterates 5 STARS (strong buy)

Analyst: Evan Momios, CFA

We think the announced acquisition of New Orleans-based Hibernia by Capital One for $5.3 billion, per agreement by the companies' boards, would offer Capital One meaningful funding and revenue diversification benefits. Pricing seems to be in line with comparable deals. We think integration risks and cost savings should be minimal, based on the dissimilar models of the companies. We are keeping our respective 2005 and 2006 earnings per share estimates of $6.90 and $7.70, and our 12-month target price of $95.

The proposed deal is expected to close in the third quarter, pending needed approvals.

Sony Corp. (SNE ): Reiterates 3 STARS (hold)

Analyst: John Yang

Howard Stringer, Chairman and CEO of Sony Corp. of America, is named Chairman and CEO of Sony, replacing Nobuyuki Idei who, along with six others, will resign from the board by June 22, 2005. Stringer is the second foreigner recently designated to lead a major Japanese company. We think this move was catalyzed by shareholders' dissatisfaction with current board and management's restructuring efforts. While we believe it is still early to assess impact of the change, we think it could foreshadow a major strategic shift with possible future earnings implications. Our target price is $39.

Boston Scientific (BSX ): Reiterates 4 STARS (buy)

Analyst: Robert Gold

At the American College of Cardiology conference, Boston Scientific said that its Taxus V trial met clinical endpoints. We view the 12.1% rate of revascularization, vs. 17.3% in the control group as positive, given the challenging patient set, as well as the 15% incidence of a major adverse cardiac event. But we view the 13.7% rate of vessel reclosure as a bit high. Johnson & Johnson's Reality trial results had showed no meaningful difference between its Cypher and Boston Scientific's Taxus, which we see as positive for Boston Scientific. We see no dramatic impact on dynamics of U.S. drug coated stent market from the trials' results.

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