Dow Jones & Co. (DJ)
Maintains 3 STARS (hold)
Analyst: J. Peters, CFA
Dow Jones announces that a director representing the Bancroft family, the company's controlling shareholders, informed the company's board that "the mission of Dow Jones may be better accomplished in combination or collaboration with another organization, which may include News Corporation." Previously, the family had indicated Dow Jones was not for sale. We continue to believe the company will ultimately accept the $60/share offer from News Corp. (NWS), with concessions that ensure the journalistic integrity of Dow Jones publications. We do not see competing bids emerging.
Maintains 3 STARS (hold)
Analyst: K. Kirkeby, CFA
Monsanto receives Justice Dept. okay to proceed with acquisition of Delta and Pine Land (DLP), conditioned upon sale of its U.S. branded cotton seed business and the amending of certain licenses. Although the purchase faces some legal challenges, we believe likelihood that Monsanto completes the deal has risen. We are raising our 12-month target price by $5 to $66 on revised discounted cash-flow and relative valuations, mostly from strength in corn markets and plantings rather than potential gains from Delta and Pine Land, which we think would be EPS neutral in fiscal 2007 (Aug.) and only modestly accretive in fiscal 2008.
Forest Laboratories (FRX)
Reiterates 4 STARS (buy)
Analyst: H. Saftlas
Phase III results on stroke therapeutic desmoteplase (in-licensed from Paion AG) showed it no more efficacious than a placebo. However, we believe expectations for this drug were relatively low, given past clinical data and limited market potential. We still see much promise for other key R&D products, such as milnaciprin for fibromyalgia, and nebivolol heart drug. In our opinion, new products should fill the gap after generics hit Lexapro and Namenda in 2012. Our 12-month target price remains $67, a modest premium-to-peers price-to-earnings ratio of 21.6 times the $3.10 EPS we see for fiscal 2008 (Mar.).
Reiterates 3 STARS (hold)
Analysts: J. Yin, C. Montevirgen
March-quarter loss of 5 cents, vs. a 3 cents loss one year earlier, is narrower than our 7 cents loss estimate. Revenues grew 66% on strong sales of Guitar Hero II and Call of Duty 3, and good results from the distribution business. Although selling, general and administrative (SG&A) expenses fell as a percentage of sales, rises in various product creation costs hurt profitability. We see new console base growth and new releases helping longer-term results, but we are somewhat wary of valuations. We are cutting our fiscal 2008 (Mar.) EPS estimate by 12 cents to 48 cents, reflecting new guidance; but keeping our target price of $20 based on relative metrics.