S&P Raises Opinion on Nortel

Plus: Analysts upgrade the outlook for the property-casualty industry; and comment on reports that a Kerkorian representative may join GM's board

Nortel Networks (NT ): Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Kenneth Leon, CPA

We view Nortel as fairly valued relative to principal peers Alcatel (ALA ) and Lucent Technologies (LU ). All three equipment makers face similar market challenges, in our opinion, as their customers migrate from higher-margin legacy fixed-line networks to lower margin IP-based converged networks. Nortel has also selected a new CEO who may act to restructure the company. Despite our concerns about when Nortel will reach double-digit sales growth, we believe its shares are worth holding for potential improvement in carrier spending.

General Motors (GM ): Reiterates 2 STARS (sell)

Analyst: Efraim Levy, CFA

GM shares were up about 3% Dec. 7, we think on unconfirmed news reports that the automaker is inviting a representative of Kirk Kerkorian's Tracinda Corp. to serve on its board. While we think that the representative, former Chrysler CFO Jerry York, would be an asset to GM's board, given his automotive and other experience, we do not think that his presence alone will turn the tide in GM's turnaround efforts. We had expected the move at some point, given Kerkorian's 9.9% stake in GM shares. We expect more details about GM's restructuring plans in January. Our target price is $22.

Property-Casualty Sub-Industry: Ups Outlook to Positive from Neutral

Analyst: Cathy Seifert

Our more positive stance reflects what we view as a selectively improved pricing environment that we see emerging in early 2006 for many lines of coverage. We are also encouraged that most primary insurers' capital bases withstood the impact from Hurricanes Katrina et al. Our outlook is somewhat tempered by our view that valuations of a number of firms are adequate. Our top pick is Allstate (ALL ), which is trading at less than 9 times our $6.35 estimate for 2006, at a discount to peers. Our $68 target price for Allstate, raised by $4 Wednesday, assumes less of a discount to peers.

LP Units Of TEPPCO Partners (TPP ): Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Royal Shepard

Our upgrade is based on valuation. The partnership holds a diversified and growing group of transportation and storage assets. Its guidance suggests our 2005 earnings estimate of $1.66 per unit is achievable. For 2006, our estimate is $1.95, reflecting recent acquisitions and expanding natural gas gathering volumes. Our 12-month target price is unchanged at $43.

Gibraltar Industries (ROCK ): Starts Coverage at 3 STARS (hold)

Analyst: Leo Larkin

Gibraltar Industries processes, makes and distributes metals and engineered materials for the building products, vehicular and other industrial markets. We project earnings per share of $1.62 in 2005 and $2.02 in 2006, mostly reflecting the inclusion of acquired AMICO for a full year. We view Gibraltar Industries as the beneficiary of consolidation in the metal processing and building products industries, and we expect it to grow via acquisitions. Our 12-month target price is $25.

Casey's General Stores (CASY ): Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Anishka Clarke

October quarter earnings per share of 44 cents vs. 22 cents beats our 35 cents estimate. We are encouraged by higher-than-expected mid-single-digit same-store sales growth for gas, grocery, and prepared foods. We see sales for full fiscal year 2006 (ending April) up on continued strength of in-store sales and completion of a Gas N Shop acquisition by the end of 2005, subject to approvals. We expect wider in-store margins on improving inventory management, a better product mix including new ones, but narrower gas margins. We are upping our fiscal year 2006 estimate by 20 cents to $1.42 and target price by $4 to $28.

Healthcare Realty Trust (HR ): Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Robert McMillan

We see operating trends improving for many of Healthcare Realty Trust's large tenant operators, driven by a moderate rise in health care reimbursement rates and stabilizing bad debt expense related to the care of uninsured patients. We think this should translate into better pricing and fewer operator defaults. But we are reducing our 2005 per-share funds from operations estimate to $2.52 from $2.81 and 2006's to $2.79 from $2.95, on asset divestitures. Even with the recent decline, our target price falls by $4 to $37, but we find Healthcare Realty Trust attractive on total potential return.

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