S&P Keeps Strong Buy on P&G, Colgate

Plus: Analyst opinions on Lexmark International, Sony, and more

Procter & Gamble (PG)

Reiterates 5 STARS (strong buy)

Analyst: Loran Braverman, CFA

P&G posts December-quarter EPS of 84 cents vs. 72 cents one year earlier, a penny ahead of our estimate, primarily due to stronger-than-expected revenues, led by the household care segment. Total company organic sales rose 5%, compared with our forecast of 3.5%. We are raising our fiscal 2007 (ending June) EPS estimate by 3 cents to $3.03, the upper end of management's guidance of $2.99-$3.03. We are increasing our p-e-based 12-month target price, a blend of our historical and peer analyses, by $3 to $77, using a 23.8 times multiple on our calendar 2007 EPS estimate of $3.23.

Colgate-Palmolive (CL)

Reiterates 5 STARS (strong buy)

Analyst: Loran Braverman, CFA

Colgate posts fourth quarter operating EPS of 78 cents vs. 69 cents, a penny ahead of our estimate. The upside reflected stronger sales than expected, with unit volume up 8%, adjusted for divestitures, compared with our 7% projection. Colgate gained market share in toothpaste in many key countries including the U.S. We are increasing our 2007 EPS estimate by 4 cents to $3.30 vs. 2006 operating EPS of $2.91. We are raising our 12-month target price by $2 to $77. This blends our historical and peer analyses with our discounted cash-flow model; the latter assumes 8% weighted average cost of capital and 3% terminal growth rate.

Lexmark International (LXK)

Reiterates 2 STARS (sell)

Analyst: Richard Stice, CFA

The shares are down about 6% after Lexmark posts fourth quarter operating EPS of 91 cents vs. 71 cents, 7 cents above our estimate, primarily due to lower taxes. Revenue rose modestly, as growth in laser units was largely offset by inkjet weakness. We are increasing our 2007 EPS estimate by 23 cents to $3.69, to reflect the updated tax rate. But, we are lowering our discounted cash-flow- and relative p-e-based target price by $2 to $58. Given our forecast for ongoing revenue growth challenges in 2007 and potential for an increasingly competitive pricing environment, we advise investors to place funds elsewhere.

Sony (SNE)

Maintains 3 STARS (hold) on American Depositary Receipts

Analyst: Tuna Amobi, CPA, CFA

December-quarter earnings per ADR rose 6% in local currency, to US$1.28, after certain one-time gains and currency losses. Results reflected strong sales of LCD TV and digital cameras, DVD sales of The Da Vinci Code and Talladega Nights, and theatrical releases Casino Royale and The Pursuit of Happyness. We see PS2 shipments still going strong, with 2 million worldwide PS3 units tracking as expected, but weighing on Games unit somewhat more than expected. Still, Sony lifted its fiscal 2007 (ending March) EBIT (earnings before interest and taxes) outlook 20% to 60 billion yen, with stronger gains in electronics and contributions from equity affiliates.

CNET Networks (CNET)

Cuts to 2 STARS (sell) from 3 STARS (hold)


Fourth quarter EPS of $0.04 vs. $0.13 is $0.02 above our estimate. Revenue rose 14%, reflecting notable spending from advertisers beyond the technology and gaming areas that are crucial for CNET. The company also largely resolves its options backdating issues by making past-due filings with restated financials. However, we are cutting our 2007 EPS estimate to $0.17 from $0.31 to reflect our less favorable net margin outlook. CNET is up 10% today, perhaps on a lack of substantial negatives coming out of the results and conference call. However, its shares are above our target price of $8.

Hitachi (HIT)

Ups to 3 STARS (hold) from 1 STAR (strong sell)

Analyst: J. Hingorani

We think restructurings at Hitachi will begin to bear fruit in fiscal year 2008 (Mar.). We believe re-emergence of nuclear power globally could be beneficial for Hitachi power systems, and believe the company has put recent setbacks behind it. We also see the company targeting its information technology business more aggressively, expanding its presence in the storage space and focusing on providing consulting services. We are raising our 12-month target price by $14 to $67. Our estimated fiscal year 2007 loss per ADR remains $1.40.

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