S&P Keeps Strong Buy on Exxon Mobil

Plus: Analyst opinions on International Paper, American Standard, and more

Exxon Mobil (XOM)

Reiterates 5 STARS (strong buy)

Analyst: Tina Vital

The company posts fourth quarter operating EPS of $1.69, vs. $1.65 one year earlier, reflecting lower natural gas price realizations and narrowed refining margins, and beating our estimate by 17 cents. Results exclude a tax benefit of 7 cents. Oil and gas production declined 0.9% but was above our expectations; we forecast 3% growth for 2007. We are increasing our 2007 operating EPS estimate by 55 cents to $7.12 and our forecast for 2008 by 78 cents to $7.59. Blending our discounted cash-flow and relative valuations, we are raising our 12-month target price by $5 to $89, an expected enterprise value of 7.4 times our 2007 EBITDA (earnings before interest, taxes, depreciation and amortization) estimate -- a premium to peers.

International Paper (IP)

Maintains 4 STARS (buy)

Analyst: S. Benway, CFA

IP reports fourth quarter EPS of 47 cents, vs. 4 cents one year earlier, ahead of our 41 cents estimate. A significant restructuring at the company is largely complete and results benefited from lower interest costs and a reduced share base as well as higher prices. We think conditions in IP's paper and packaging markets will remain favorable in 2007, and it should benefit from high prices, lower interest and pension costs, and the contribution from joint ventures. For 2007, we are raising our EPS estimate by 15 cents to $2.15, but maintaining our 12-month target price of $41.

American Standard (ASD)

Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Michael Jaffe

Fourth quarter EPS of 51 cents, vs. 44 cents (pro forma) one year earlier, both before one-time items, is 5 cents below our forecast. But shares are up 8% after American Standard says it is separating its three business segments, subject to approvals. American Standard plans to keep its air-conditioning business, spin off its vehicle controls unit, and find a buyer for its bath and kitchen unit. We are hiking our 2007 EPS estimate by 10 cents to $3.20. We think the sale of the struggling bath and kitchen unit would be highly accretive, and are raising our 12-month target price $6 to $57, about 18 times our 2007 estimate. We see premium to S&P 500 merited but much of the positive news is already in the shares.

Sonicwall (SNWL)

Ups to 5 STARS (strong buy) from 4 STARS (buy)


Our upgrade reflects valuation and our improved expectations for second half. The shares of Sonicwall have declined about 20% in past two months. We have some concern about the Dec-Q Sonicwall will report next week. Bookings may be light because of a new platform introduction. However, we believe this should bode well for 2nd half. Sonicwall is trading at a 1.6 times ratio of enterprise value to sales, below industry average 2.6 times. We are increasing our 2007 operating EPS est. from $0.01 to $0.07, after $0.24 of stock option expense. We are raising our 12-month target price to $11 from $10.

Valero Energy (VLO)

Cuts to 4 STARS (buy) from 5 STARS (strong buy)


Valero Energy posts fourth quarter operating EPS of $1.59 vs. $2.00, before a special gain of $0.21, beating our estimate by $0.08. Throughputs declined 2.1% to 2.96 million barrels per day, slightly below our expectations; based on guidance, we expect first quarter levels will be up 2% from the fourth quarter. We are increasing our 2007 EPS estimate by $1.43 to $7.29, and 2008's by $1.75 to $6.88. Blending our DCF and relative valuations, we are raising our 12-month target price by $3 to $63, an expected enterprise value of 5.7 times our 2007 EBITDA estimate, in line with peers.

Centerpoint Energy (CNP)

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

Analyst: J.McCann

Following recent rise in the stock, we believe shares are overvalued at about 7% premium-to-peers P/E applied to our 2007 estimate. Centerpoint Energy will report earnings on February 28. We are maintaining our operating EPS estimates of $0.21 for the fourth quarter and $1.05 for full-year 2006. Estimates do not include $0.04 charge the company will take for a settlement with the IRS. We are keeping our 2007 EPS estimate of $1.05. With a slightly below-peers dividend yield of 3.4%, we are keeping our 12-month target price of $16, an approximate peer-P/E of 15.2 times on our 2007 estimate.

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