Eastman Kodak (EK; $28.19)
Upgrades to 3 STARS (hold) from 2 STARS (sell)
Analyst: E. Kolb
Kodak announces it is developing a new camera sensor technology that increases light sensitivity to improve low-light performance. We see this news as positive, but we believe it will be at least a year before the sensor is integrated into a shipping camera. Additionally, we would like to see the sensor compared to current offerings from competitors. We are encouraged by this and other developments, and we are raising our 2007 EPS estimate to 30 cents from 10 cents. We are also lifting our 12-month target price to $33 from $22 on a blend of historical and relative valuations.
Freddie Mac (FRE; $65.16)
Upgrades to 4 STARS (buy) from 3 STARS (hold)
Analyst: Stuart Plesser
Update: After its first-quarter conference
call, we believe Freddie will benefit from borrowers' current penchant for more traditional mortgages. Notably, the company's GSE market share rose to 46% in the first quarter from 43% in 2006. Also, given a reduction in securities
prices, we look for the company to add to its retained portfolio, which should give a boost to net interest income. We believe a Democratic-controlled Congress mitigates more stringent regulations. We are raising our target price by $7 to $75, 2.1 times our 2007 book value
estimate of $35.85, a slight premium to Freddie's book value multiple over the last year.
News Corp. (NWS; $24.09)
Maintains 3 STARS (hold)
Analyst: Tuna Amobi, CPA, CFA
The company's plan to divest 9 Fox-affiliated mostly mid-sized TV stations, part of its 35-station group reaching 38% of U.S. homes. While the unexpected sale of generally well-run stations may be motivated by buoyant private valuations, we see a few hundred million dollars with auction potentially augmenting the company's bid for Dow Jones (DJ). Including its 9 duopolies, the company's TV group would be mostly located in largest markets and a few smaller ones, with a reach meaningfully below FCC's current 39% cap. Separately, we see continued Fox network momentum vs. challenges at My Network TV.
Kellogg Co. (K; $52.09)
Maintains 4 STARS (buy)
Analyst: Thomas Graves, CFA
We expect that tougher company standards for products marketed to children will help ease or deflect nutritional concerns. Meanwhile, we see opportunities for above-average sales growth from some international markets, and we expect North American growth drivers to include snack foods, and cereal sales to adults. We are lowering our 2007 EPS estimate to $2.76 from $2.78, but raise our 2008 estimate to $2.97 from $2.95. We expect Kellogg to announce a dividend increase in July. We keep our 12-month target price of $58. The indicated dividend yield is about 2.4%.
EchoStar Communications (DISH; $45.55)
Maintains 2 STARS (sell)
Analyst: Tuna Amobi, CPA, CFA
An unconfirmed Wall Street Journal report says EchoStar and Liberty Media (LINTA) are close to a joint bid for Intelsat, expected at $4.5-$5.5 billion. While EchoStar has recently moved to leverage its ample satellite capacity via fixed satellite services (FSS), we would be surprised by a bid for the world's leading FSS provider. Beyond a potential collaboration with Liberty, which agreed to acquire DBS peer DirecTV (DTV), we contend any such deal for the highly leveraged Intelsat lacks compelling strategic and financial merits amid rising competition from cable's bundled offerings.