S&P Says Hold General Electric
General Electric (GE ): Maintains 3 STARS (hold)
Analyst: Robert Friedman
Today's 30% spinoff of Genworth Financial, GE's life and mortgage insurance operation, is part of the conglomerate's ongoing efforts to shed ostensibly slow-growth, low-return businesses and migrate towards faster-growing, high-return-on-equity businesses, in our view. Although we believe GE's efforts to run its high-return-on-equity businesses is a noble cause, we also believe the company is going out on the steeper end of the business risk curve. Trading near our DCF-based 12-month target price of $31, we maintain our hold recommendation.
Omnicare (OCR ): Maintains 4 STARS (accumulate)
Analyst: Frank Connelly
Omnicare announced a hostile $30 per share cash tender offer for shares of rival NeighborCare. The planned deal is subject to shareholder and regulatory approvals. We give Omnicare a high likelihood for success as they are offering 30% premium to Friday's closing price for NeigborCare shares. We value the total purchase at $1.48 billion, including NeigborCare's net debt. The proposed deal would increase Omnicare's bed count by 24% in mostly non-overlapping markets. Should the deal be consummated as Omnicare plans, we would view it positively. But, we would still find shares attractive should the deal not go through.
Lucent Technologies (LU ): Reiterates 3 STARS (hold)
Analyst: Kenneth Leon, CPA
Lucent announced it plans to acquire privately held Telica, a provider of voice over Internet protocol (VoIP), for $295 million in stock and options. Telica's VoIP softswitches, in our view, may allow Lucent to catch up to its competitors for servicing new carriers or incumbents that converge circuit switch voice with VoIP. We see the company's ability to scale Telica's switch to the level needed by the regional bell operating carriers as important. Lucent says the deal should close, subject to approvals, by the September quarter and dilute 2005 earnings per share by 1 cents to 2 cents. Below peers at two times our 2004 sales estimate, we would hold the shares.
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