Credit Suisse Group (CSR ): Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Derek Chambers
During Credit Suisse Group's investor day, management outlined details of the cost savings and revenue gains it hopes to achieve following the integration of its banking operations. We believe management has gained credibility on its ability to deliver its target of achieving CHF 8 billion in net profits by 2007. However, with the recent run up in price, we believe the American Depositary Shares are fairly valued. On forex, we are cutting our 2005 and 2006 earnings per American Depositary Share estimates by 3 cents each to $3.99 and $4.47, respectively. Our 12-month target price rises by $1 to $53.
Alltel (AT ) : Maintains 3 STARS (hold)
Analyst: Todd Rosenbluth
We have a favorable view of the terms of Alltel's wireline spinoff and planned merger of the segment with Valor (VCG ), pending approval. We are raising our 12-month target price by $4 to $69. Assuming completion, we expect that the new wireline entity will generate strong cash flow to support its likely dividend payouts. We also see a reduced debt load helping support surviving wireless Alltel's network buildout to better compete with larger, deep-pocketed carriers.
Intel (INTC ): Reiterates 4 STARS (buy)
Analyst: Thomas Smith, CFA
Intel narrowed its fourth quarter revenue and gross margin guidance toward the mid-point of the prior ranges. We are maintaining our fourth quarter revenue estimate at $10.56 billion and raising our gross margin forecast to 63.3% from 63%. Our fourth quarter earnings per share estimate remains 43 cents and our full 2005 estimate stays $1.42, excluding stock-based compensation expense. Switching to include stock option costs in our operating estimates for future years, we are lowering our 2006 estimate to $1.43 from $1.60. Given an update with remarkably few changes, we still view Intel as a moderate outperformer over the next 12 months.
Merck (MRK ) : Reiterates 3 STARS (hold)
Analyst: Herman Saftlas
The company responded to a New England Journal of Medicine editorial that alleges Merck withheld data on three heart attack occurrences in its 2000 VIGOR Vioxx study. Saying the study was fair and accurate, Merck notes that the events occurred after the trial cut-off date, were disclosed to the Food and Drug Administration in 2000, and would not have materially changed study results. We think Merck will continue to trade near current levels, with Vioxx litigation worries balanced by its $1.52 dividend payout (currently yielding 5.2%). Our 12-month target price stays $30.
Eli Lilly (LLY ) : Reiterates 4 STARS (buy)
Analyst: Herman Saftlas
Eli Lilly outlined a pipeline we view as robust, raised fourth quarter earnings per share guidance to the top of its 73 cents to 79 cents range, and sees $3.10 to $3.20 for 2006. Options expense is included in both. The company expects nine newer drugs to account for 18% of 2005 sales and 25% in 2006. We think 2006 will also benefit from new Medicare drug benefit, cost controls, a lower tax rate, and $500 million stock buyback. Our 12-month target price remains $62, valuing Eli Lilly at a premium-to-peers 19.7 times our 2006 estimate of $3.15. We view the premium as justified by Eli Lilly's pipeline, in which we see five potential late-stage blockbusters.
Gateway (GTW ) : Reiterates 3 STARS (hold)
Analyst: Megan Graham-Hackett
Gateway announced that the International Trade Commission overturned on appeal an earlier ruling supporting Hewlett-Packard's (HPQ ) claim that Gateway infringed on Hewlett-Packard's patents involving parallel port technology. The case has been remanded to an administrative law judge. In our view, the eventual outcome is unclear, but at this point we don't expect a material impact on Gateway's earnings and continue to see 2006 earnings per share of 12 cents, including 9 cents stock option expenses. With cash of $1.56/share and the stock trading well below peers, we view Gateway as worth holding.