Whirlpool (WHR): Downgrades to 3 STARS (hold) from 4 STARS (buy)
Analyst: Thomas Smith, CFA
The downgrade is based on valuation. Whirlpool posts first quarter EPS of $1.55, excluding 9 cents loss on discontinued operations, vs. $1.70 one year earlier, below our $1.60 estimate but above the Street's $1.12. Revenues rose 24% or 2% before acquired Maytag operations. We see international growth and cost saving efforts helping to overcome sluggish U.S. sales and high raw material costs. We are maintaining our 2007 and 2008 EPS estimates at $9.00 and $10.25. We note positive progress, but are more cautious as the shares approach our 12-month target price, which remains $108, based on a price-to-earnings (p-e) ratio of 12, near historic norms, applied to our 2007 EPS estimate.
AT&T (T): Maintains 3 STARS (hold)
Analyst: Todd Rosenbluth
Following first quarter results that beat our estimate by 5 cents, we are raising our 2007 EPS estimate by 9 cents to $2.65. In addition to first quarter operating margin expansion, aided by low wireless subscriber churn and network integration, we see AT&T's faster share buyback as supporting earnings growth. While we see challenges to the company increasing its revenues, given competitive pressures, we believe cost savings will be the driver of our 23.6% operating margin forecast for 2007. We are raising our 12-month target price by $1 to $38 on relative p-e analysis. T recently yielded 3.6%.
Pepsi Bottling Group (PEP): Downgrades to 3 STARS (hold) from 4 STARS (buy)
Analyst: Raymond Mathis
Pepsi Bottling reports first quarter EPS of 12 cents vs. 14 cents one year earlier. Before a non-cash charge of 2 cents, EPS was flat, but still a penny below our estimate. Input costs rose 5%, offsetting 4% higher selling prices, a trend that we see continuing. We think price increases should benefit results for the remainder of the year, and cost savings initiatives should aid margins. Also, the introduction of Pepsi Max could boost volumes later in 2007. Nonetheless, we are reducing our 2007 EPS estimate by 2 cents to $1.94, and trim our 12-month target price to $36 from $37, based on our revised relative valuation.
Dynegy (DYN): Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Christopher Muir
Dynegy shares have risen almost 100% over the past year compared to a 13% rise in the S&P 500. While we expect Dynegy to return to profitability this year, and we see strong EPS growth as the company continues to benefit from lower debt levels, we think the current valuation reflects most of these factors. In addition, we are lowering our 12-month target price by $2 to $11, or 33 times our 2007 and 23 times our 2008 EPS estimates, as we slightly lower our 3 to 5 year EPS growth forecast. We expect Dynegy to post first quarter EPS of $0.07 vs. $0.01 on May 8, aided by lower interest expense.
Pacific Capital Bancorp (PCBC): Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Stuart Plesser
Pacific Capital Bancorp posts first quarter EPS of $1.23 vs. $1.43, $0.01 above our estimate. Notably, the company's core bank (exclusive of its tax loan business) posted strong results, with revenue up 7.4% and expenses down 6.6%. The bank is looking to shed some of its non-core businesses and, in turn, reduce borrowed funds. As a result, we look for its net interest margin to increase in the quarters ahead. We are increasing our 2007 EPS estimate by $0.06 to $2.15. We are raising our 12-month target price by $2 to $31, 14.4 times our 2007 EPS estimate, a slight discount to its historical average.
TCF Financial (TCB): Ups to 3 STARS (hold) from 2 STARS (sell)
Analyst: Frank Braden
First quarter operating EPS of $0.42 vs. $0.43 is $0.03 below our forecast. Results do not include $31 million pretax gain on the sale of 10 branches in Michigan or $8.5 million reduction in income tax expense. Although we think TCF Financial is feeling pressure from both a shift in mix to costlier products and a difficult yield curve environment, we believe these issues are starting to bottom. Credit quality remains solid, in our view, with net charge-offs as a percent of average loans at 10 basis points. We are raising our target price to $27 from $24, 13.5 times our $2.00 2007 EPS estimate, in line with TCF Financial's historical average.