General Motors (GM) : Ups to 3 STARS (hold) from 2 STARS (sell)
Analyst: Efraim Levy, CFA
Adjusted second quarter EPS of $2.03 vs. a per-share loss of $1.75 beat our 80 cents earnings per share (EPS) estimate. Cost-cuts are coming faster than we expected, but are largely non-cash; marketshare is still declining. GM faces intense competition and the challenge of sustaining sales growth as its product lines age. It also faces reduced earnings contributions from GMAC after the planned sale of the finance unit in the fourth quarter. We are raising our 2006 EPS estimate by $1.78 to $3.81 and our 12-month target price by $12 to $32.
Allegheny Technologies (ATI) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Leo Larkin
The increase in our opinion reflects our more optimistic outlook for EPS. Allegheny Technologies posts second quarter EPS of $1.37 vs. 92 cents on a 34% sales gain, exceeding our $1.14 estimate. Sales and EPS are benefiting from strong demand from aerospace/defense, electrical energy, chemical processing, oil/gas, and medical products. Allegheny Technologies expects no seasonal slowing in the third quarter. On our more positive outlook, we are increasing our 2006 EPS estimate to $5.25 from $4.40, and raising our 12-month target price to $80 from $69.
3M (MMM) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Anthony M. Fiore, CFA
We believe the recent decline in shares of 3M, which closed yesterday more than 20% lower than early May, represents an attractive buying opportunity. We expect that current issues related to the Display & Graphics business, including a less favorable product mix, excess inventory, and low yields, will likely abate over coming quarters, leading to improvement in operating margin, albeit at a lower level than our previous forecast. We are reducing our 2006 operating EPS estimate by 10 cents to $4.45. We are lowering our target price by $3 to $80.
Corning (GLW) : Ups to 3 STARS (hold) from 1 STAR (strong sell)
Analyst: Kenneth Leon, CPA
Second quarter EPS of 26 cents vs. 21 cents, before special items, is a penny above our estimate. Sales rose 10.5% from a year ago, but were flat sequentially vs. the first quarter, as a display panels unit showed a sharp sales decline and lower pricing. As a result, Corning's gross margin fell to 42.9% from the first quarter's 45.4%. We project second half sales to grow a high-single-digit percentage, while margins may remain under pressure. We are lowering our 2006 EPS estimate to $1.00 from $1.05 and 2007's to $1.10 from $1.20. With Corning priced at 17.7 times our 2007 EPS estimate, near peers, our 12-month target price remains $20.
XTO Energy (XTO) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Charles LaPorta
XTO reported second quarter operating earnings per share (EPS) of 83 cents vs. 60 cents, roughly in line with our 85 cents estimate. The company is having tremendous success in the Freestone Trend and the Barnett Shale, both Texas plays, such that they increased their 2006 production guidance to 14%, at the top end. Additionally, XTO's per unit operating costs declined sequentially due to lower power and fuel costs. We are raising our 2007 EPS estimate to $5.50 from $4.35. Our 12-month target price remains $50.
CNOOC (CEO) : Ups to 5 STARS (strong buy) from 4 STARS (buy)
Analyst: D. Huang
We believe CNOOC deserves to trade at apremium to its China counterparts due to its high return on equity of 41.5%. Partly offset by the increases in our lifting costs and windfall tax assumptions, we are raising our 2006 and 2007 EPS forecasts by 50 cents and 35 cents to $10.75 and $11.00, respectively. Downside risks, in our view, would stem primarily from a steeper slowdown in global demand that sends oil prices lower, and pressures on its selling price from its main buyer Sinopec. We are raising our target price by $7 to $103,reflecting a p-e of 9.4 times 2007 EPS, in line with peers.