S&P: Still Buy Oracle

Plus: A downgrade of the reinsurance sector, and analyst opinions on Alcoa, Alltel, and more

Oracle (ORCL ) : Maintains 4 STARS (buy) Opinion

Analyst: Zaineb Bokhari

August quarter pro forma earnings per share of 14 cents vs. 10 cents is in-line with our forecast. Pro forma revenue grew 29% in constant currency, modestly below our view, aided by acquisitions. Database and Middleware revenue, an approximate indicator of organic growth, rose 1% in the seasonally slow August quarter after a strong May quarter. Applications surged 84% on acquisitions. Our fiscal year 2006 (ending May) earnings per share estimate rises by 2 cents to 80 cents, reflecting modestly higher operating leverage. We also see 91 cents in fiscal year 2007. Our target price falls by $2 to $15, an 18 times p-e on our 85 cents calendar 2006 earnings per share estimate, a modest discount to peers.

Reinsurance subindustry: Cuts outlook to negative from neutral

Analyst: Cathy Seifert

Our more cautious stance reflects what we view as an outsized exposure by number of carriers to Hurricane Katrina relative to their equity bases. While we expect reinsurance pricing to strengthen considerably in the wake of Katrina and Rita, we remain concerned that a number of reinsurers may be too capital constrained to participate in that pricing recovery. Our top pick remains Aspen Insurance (AHL ), ranked 5 STARS (strong buy). We have a 3 STARS (hold) recommendation on Arch Capital (ACGL ), and 2 STARS (sell) on Platinum Underwriters (PTP ), Endurance Specialty (ENH ), and Renaissance Re (RNR ).

Alltel (AT ) : Cuts to 3 STARS (hold) from 2 STARS (sell)

Analyst: Todd Rosenbluth

We continue to believe that Alltel will face operational challenges integrating newly-acquired wireless customers and competing with larger, deeper-pocketed national carriers. However, we have greater confidence that Alltel will complete its formal review of strategic options and make a shareholder-friendly decision to sell or complete a tax-free spin-off of its wireline operations in the next six months. As such, we are raising our 12-month target price by $5 to $65, using a combined enterprise value/earnings before interest taxes depreciation and amortization multiple of 7.5 times that incorporates an increased multiple for wireline assets.

Palm (PALM ): Reiterates 3 STARS (hold) Opinion

Analyst: Megan Graham-Hackett

August quarter earnings per share of 41 cents vs. 43 cents beats our 34 cents estimate. While 25% higher revenues met our estimate, the upside came mainly from operating expenses and taxes that were lower than our model. Treo units rose 160% to 470K units on strong demand but, as was our concern, personal digital assistant units fell, off 22% on what we view as poor penetration in Europe. Palm sees November quarter revenues slightly below our model at $435 million to $440 million, but our fiscal year 2006 (ending May) estimate remains $1.75, excluding a potential tax rate change. With shares indicated to trade at a price/sales of 1.2 times, below peers, we view the stock as worth holding.

Alcoa (AA ): Reiterates 4 STARS (buy) Opinion

Analyst: Michael Jaffe

Alcoa shares were off 7% Friday morning, as company guides for third quarter EPS of 27 cents to 31 cents, well below our estimate. It cites lower aluminum prices and higher costs for energy and raw materials. However, we remain positive on Alcoa, given our view that lower Chinese exports will bring higher aluminum prices, and that materials costs will moderate somewhat. We are cutting our 2005 estimate by 25 cents, to $1.55, and still see 2006 at $2.15. We think Alcoa is undervalued at 11 times our 2006 estimate, at the low end of its range for the past decade. Our 12-month target price remains $33, based on relative p-e.

Allied Capital (ALD ) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Robert Hansen, CFA

We think the company will be able to reinvest the nearly $1 billion in proceeds from the sale of its commercial mortgage-backed securities and collateralized debt obligation portfolios in 2005, at a pace faster than we had originally expected. We think net investment income will remain depressed throughout 2005, partly on high legal costs, but will then rebound in 2006. We are leaving our 2005 earnings per share estimate at $3.90, but raising 2006's to $2.50 from $2.25. Our 12-month target price goes to $28 from $23, about 11 times our 2006 estimate, a premium to peers. We view Allied Capital's dividend as secure and would hold its shares on a total return basis.

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