S&P Downgrades Google to Hold

Analyst Scott Kessler thinks the stock's considerable positives are reflected in its price. Plus: opinions on AIG, Nortel, and more

Google (GOOG ): Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Scott Kessler

Google shares have appreciated substantially since the company completed its August, 2004, IPO at $85 per share. Year-to-date, the stock is up some 49%. We think considerable positives are already reflected in the shares, and we expect Google to face increasing competition in search advertising as it pursues opportunities beyond its core franchises. Nonetheless, based on a revised relative analysis, we are raising our 12-month target price to $317 from from $300. Despite the appeal of Google's prospects, we believe the risk-reward considerations warrant a hold recommendation.

American International Group (AIG ): Reiterates 4 STARS (buy)

Analyst: Catherine Seifert

AIG's long-awaited 10-K filing includes a write-down to earnings from 2000 to 2004 totalling nearly $4 billion, including a $1.32 billion reduction in 2004 net income to $9.73 billion ($3.69 per share). The $2.26 billion writedown to shareholders' equity, to $80.6 billion ($30.57 per share), was less than our $3 to $4 billion estimate. We are keeping our $5.20 2005 operating earnings per share estimate and our $64 12-month target price, a peer average 12.3X our 2005 earnings per share estimate. But our outlook remains tempered by our view that AIG may likely have to boost its asbestos and certain casualty loss reserves.

Nortel Networks (NT ): Maintains 3 STARS (hold)

Analyst: Kenneth Leon, CPA

Nortel Networks posted first-quarter breakeven, vs. a penny earnings per share, before special items, a penny below our estimate. Sales increased 3.8%, but declined 3% from the fourth quarter. GSM and UMTS system sales offset weaker sales from CDMA. Because of changed product mix, gross margin slipped to 41.7% from 45.3% in the fourth quarter. We see 6% sales growth in 2005 with gross margin of 42%-44%. We are lowering our 2005 earnings per share estimate to 7 cents from 13 cents, and 2006's to 12 cents from 18 cents including 3 cents for a stock option expense. With our view of regulatory risks easing and priced at 1 time our 2005 sales estimate, we would hold Nortel Networks shares.

Mylan Labs (MYL ): Reiterates 3 STARS (hold)

Analyst: Herman Saftlas

The FDA issues an approvable letter for Mylan's new nebivolol anti-hypertensive; however, we see further delays in reaching the market, as final FDA approval is contingent on the successful completion of a pre-clinical study. We also think nebivolol needs a congestive heart failure indication for commercial success, which we believe could take another two years to achieve. Mylan will discuss nebivolol at a special meeting on June 14. On the plus side, we like Mylan's pipeline, which includes 44 abbreviated new drug applications. Our 12-month target price remains $20, a premium to peers' p-e based on our fiscal 2006 estimate.

Fairchild Semiconductor (FCS ): Reiterates 3 STARS (hold)

Analysts: Amrit Tewary, Scott Kessler

Fairchild Semiconductor cuts guidance for second-quarter sales and gross margin. The company now sees second-quarter revenues as flat-to-down sequentially, compared to its prior outlook of flat sales. Gross margin is expected to be 100 to 200 basis points lower than te first quarter's, compared with the company's previous forecast of flat-to-slightly higher. Fairchild said May bookings and turns were lower than April's and below its expectations due to higher-than-normal channel inventories at the beginning of the second quarter. We are cutting our earnings per share estimates for second-quarter to 4 cents from 7 cents, and full-year 2005's to 40 cents from 43 cents. Our 12-month target price remains $15.

Altera Corp. (ALTR ): Reiterates 3 STARS (hold)

Analyst: A.Tewary, S.Kessler

Altera expects second-quarter revenues to be at the high-end of its prior guidance of a sequential increase of 4% to 5%, reflecting healthy sales of its newest products. The company has also decided to repatriate $400 million of foreign earnings pursuant to provisions of the American Jobs Creation Act of 2004. The repatriation and previously disclosed resolution of two outstanding audits will result in a one-time net tax charge of $1 to $6 million in the second quarter. Our 2005 earnings per share estimate of 73 cents and our 12-month target price of $22, based on relative analysis, are unchanged.

Semtech Corp. (SMTC ): Reiterates 3 STARS (hold)

Analysts: Amrit Tewary, Richard Stice, CFA

Semtech posted April-quarter earnings per share of 14 cents, vs. 19 cents, in line with our estimate. Sales declined 9% from a year ago, and 4% sequentially. New orders rose 3% quarter-over-quarter, but were less than shipments. Order levels in portions of the power management segment were impacted by lower average selling prices. Inventories increased 2% from the January-quarter. The company forecasts July-quarter sales and earnings per share of about $56 million and 14 cents, respectively, slightly below our estimates. Our 12-month target price of $21 is based on discounts to Semtech's historical p-e and price-to-sales multiples.

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