L-3 Communications (LLL)
Upgrades to 5 STARS (strong buy) from 4 STARS (buy)
Analyst: Richard Tortoriello
Given comments by CEO Mike Strianese reported in the Financial Times today, we believe L-3 plans to slow acquisitions, improve profit margins, and potentially offer itself for sale. Under a recently approved plan, senior officers would receive 1-3 times annual salaries and bonuses on termination in a takeover. Given our view of L-3's strong fundamentals, low valuations, and favorable markets, we view its shares as compelling. We are raising our target price to $100 from $91, based on 17.5 times our 2007 EPS estimate of $5.70, in line with L-3's 5-year average forward p-e.
Taiwan Semiconductor (TSM)
Downgrades American Depositary Shares to 3 STARS (hold) from 4 STARS (buy)
Analyst: R. Lin
Third-quarter earnings per ADS of 19 cents, vs. 14 cents one year earlier, are 2 cents above our estimate. Revenues were essentially flat from the second quarter despite a 6% rise in installed capacity to 1.86 million 8" wafers. Operating profit margins narrowed 2.2 percentage points as capacity utilization declined. Although results were ahead of our projections, we see higher-than-expected inventory levels in the global semiconductor market limiting near-term growth. The company reduced fourth-quarter guidance, reinforcing our views. We are lowering our 2006 earnings per ADS by 5 cents to 75 cents, and our 12-month target price by $1 to $10.
Clear Channel Communications (CCU)
Maintains 3 STARS (hold)
Analyst: Tuna Amobi, CPA, CFA
Before a one-cent one-time gain, third quarter EPS of 37 cents, vs. 35 cents one year earlier, is 2 cents above our estimate. Radio revenues grew 5%, above peers, a bit shy of the company's target under its Less Is More initiative. We see healthy operating leverage at U.S. Outdoor. Clear Channel says fourth quarter radio pacings are up 8.8%, which we view as solid. We see strong second half 2006 TV political ads. Clear Channel did not comment on last week's decision to mull strategic options. But we see strong interest from several private consortia, and initial bids could arrive in coming weeks. We are raising our target price by $5 to $37, on attractiveness as acquisition candidate.