United Technologies (UTX): Upgrades to 5 STARS (strong buy) from 3 STARS (hold)
Analyst: Richard Tortoriello
United Technologies' second-quarter EPS of $1.09, vs. 95 cents one year earlier, is 11 cents above our estimate, aided by net gains of 7 cents. Organic sales growth was 8%, and operating profits grew double-digits in all segments except Carrier and Sikorsky. We believe the current strong aerospace cycle will continue to favor UTX, and see the company overcoming strike-related problems at Sikorsky and what we view as temporary product-ramp problems at Carrier. We are increasing our 2006 EPS estimate by 4 cents to $3.70, and 2007's by 2 cents to $4.10. We are raising our 12-month target price by $3 to $70, or 17 times our 2007 estimate, just above the historical average.
American Electric Power (AEP): Upgrades to 4 STARS (buy) from 3 STARS (hold)
Analyst: Justin McCann
Following the recent decline in the share price and a corresponding rise in the dividend yield, now 4.2%, we view AEP as attractive for total return. The company announced today that its utility unit in Oklahoma will enter into a joint venture to build a lower emission 950 megawatt coal plant in the state. It will have a 50% interest in the $1.8 billion facility, which is expected to come on line in 2011. We are keeping our EPS estimates of $2.60 for 2006 and $2.70 for 2007, but raising our 12-month target price by $3 to $39, reflecting an approximate peer p-e of 14.4 times our 2007 estimate.
New York Times (NYT): Reiterates 3 STARS (hold)
Analyst: J. Peters, CFA
Before one-time items, NYT reported second quarter EPS of 44 cents, vs. 46 cents, a penny above our estimate. The company also announced cost-saving initiatives, with associated capital spending of $150 million, that it expects will reduce annual expenses by more than $42 million starting mid-2008. We believe continued NYT cost-cutting will eventually result in margin expansion. However, with our weak ad growth outlook and NYT's substantial near-term capital spending plans, we see no near-term catalyst for the stock. Reflecting declining peer multiples, we are lowering our 12-month target price to $26 from $28.
Coca-Cola Co. (KO): Maintains 4 STARS (buy)
Analyst: Richard Joy
Coke's second quarter EPS before special items at 74 cents, vs. 68 cents, is 2 cents above our estimate, primarily on a 2-cent benefit from the timing of gallon shipments. Worldwide unit case volume growth of 4% was in line with our estimate. Strong growth in China, Russia, Turkey, and Latin America outweighed weakness in India, Japan, and the Philippines. Overall, we are encouraged by strengthening fundamentals for Coke's businesses. Given an improving foreign exchange outlook, we are raising our 2006 EPS estimate by 2 cents to $2.34, and boosting our 12-month target price by $2 to $48 on our revised DCF model.