United Parcel Service (UPS)
Reiterates 4 STARS (buy)
Analyst: James Corridore
First-quarter operating EPS is 96 cents, vs. 89 cents one year earlier, a penny off our estimate. UPS reiterates full year guidance of 6%-10% growth in EPS. We are keeping our 2007 and 2008 EPS estimates at $4.20 and $4.70. While U.S. growth has slowed, UPS is seeing strong international demand and is generating good free cash flow, which we think is likely to continue. We keep our 12-month target price at $89, 19 times our 2008 estimate, a premium to the S&P 500 to reflect our view of strong cash generation, strong market presence, and EPS growth potential that we see as faster than the overall market.
Panera Bread (PNRA)
Downgrades to 2 STARS (sell) from 3 STARS (hold)
Analyst: Mark Basham
First-quarter EPS of 47 cents, vs. 47 cents one year earlier, is in line with our estimate. Flat first quarter system-wide comparable-unit sales were somewhat better than most casual dining and quick casual peers, but we see downside risk to Panera's guidance for a second quarter comparables increase of 3.5%-4.5%. We are lowering our second quarter estimate by 6 cents, to 48 cents, and our estimates for 2007 and 2008 by 10 cents each, to $2.05 and $2.40, on increased food and labor costs. We are lowering our discounted cash-flow-based target by $6, to $56, reflecting the new estimates. Following a sharp rise in the stock today, we view the shares as overvalued.
Business Objects (BOBJ)
Maintains 4 STARS (buy) on American Depositary Shares
Analyst: Zaineb Bokhari
We calculate first quarter operating earnings per ADS of 33 cents, vs. 22 cents, after option expense but before a legal contingency reserve, 3 cents above our estimate. Revenues grew 20% to $334 million, helped by foreign exchange effects. Total licenses rose 9% but core business intelligence licenses were nearly flat vs. a year ago. We are raising our 2007 estimate by 2 cents to $1.67, to reflect first quarter results, and setting $1.95 for 2008. We think Business Objects is executing well but we are concerned about slowing core business intelligence growth. We lower our target price $4 to $43, a 26 times p-e on our 2007 estimate, within historical averages.
Freeport-McMoRan Copper & Gold (FCX)
Reiterates 3 STARS (hold)
Analyst: Leo Larkin
Freeport-McMoRan posts first quarter EPS of $2.02 vs. $1.23 on a 112% sales increase, exceeding our $1.92 estimate. Results almost entirely reflected Freeport-McMoRan's operations as Phelps Dodge was only included since Mar. 19. We are increasing our 2007 EPS estimate to $6.45 from $6.15 and our 2008 EPS estimate to $5.50 from $5.15, assuming merger-related savings. Longer term, we think the addition of Phelps Dodge will boost the company's valuation. Prior to the merger, all of its mining assets were concentrated in Indonesia. We are keeping our 12-month target price at $70.
Radian Group (RDN)
Ups to 3 STARS (hold) from 2 STARS (sell)
Analyst: Stuart Plesser
First quarter EPS of $1.42 vs. $1.96 is a penny above our estimate. Strong mortgage insurance production was offset by weak performance from the partly owned C-Bass buyer of distressed debt. Persistency rose to 69.5% amid strong market conditions for mortgage insurance. Notably, claims paid rose 18% from the fourth quarter largely on a weaker housing market. Despite increasing our claims paid estimate by $40 million, we are keeping our 2007 EPS estimate of $6.48 assuming a C-Bass return to profit. We are raising our target price by $4 to $62, roughly 1.15 times our 2007 book value estimate, below historical levels.
Class A Shares Of Time Warner Cable (TWC)
Starts at 3 STARS (hold)
Analyst: Tuna Amobi, CFA
With the added financial muscle of parent Time Warner (TWX), we see sizable longer-term margin upside on integration of newly acquired systems by this newly public 2nd largest U.S. cable operator. Risk factors include integration challenges in key markets Los Angeles and Dallas and increased competition from DBS and telcos. We see EPS of $1.13 in 2007 and $1.52 in 2008, by the end of which projected free cash could double to nearly $2 billion. Our 12-month target price of $42 reflects an ample 9.8 times enterprise value-to-2007 EBITDA, $4,200 per subscriber, compared to peers.