S&P Ups Yahoo to Accumulate
Yahoo! (YHOO ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Scott Kessler
Yahoo posted third-quarter earnings per share of 9 cents, vs. 5 cents, excluding an 8-cent gain largely due to the sale of Google shares, in line with our forecast. Revenues, excluding traffic-acquisition costs, rose 84%, reflecting the October 2003 acquisition of Overture Services. Given our more favorable outlook for Yahoo's marketing services segment, we are raising our fiscal 2005 estimates for revenues, excluding traffic-acquisition costs, by 6% to $3.4 billion, and for earnings per share to 52 cents from 47 cents. Owing to revisions of our discounted cash-flow model and increases in near-term growth projections in particular, we are raising our 12-month target price to $41 from $33.
Host Marriott (HMT ): Downgrades to 2 STARS (avoid) from 3 STARS (hold)
Analyst: Raymond Mathis
Host Marriott posted a third-quarter loss per share of 17 cents vs. a 35-cent loss, missing our 13-cent loss estimate on 5 cents of charges for refunding debt and preferred stock. Funds from operations per share of 6 cents, vs. 3 cents, missed Street estimates. Comparable hotel revenues per available room rose 7.9% on an occupancy increase of 2.6% and a 4.1% average room-rate gain. EBITDA rose 9.0%. We see ongoing recovery in lodging real estate investment trusts, but view Host Marriott as one of the weaker players. Following a recent price rise, we view the shares as overvalued relative to its peers and to our target price of $13.
Barnes & Noble (BKS ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)
Analyst: Jason Asaeda
After a recent price decline, Barnes & Noble shares are trading below our 12-month target price of $34. While we see some positives from the planned divestiture of its ownership interest in video-game unit GameStop, we believe that Barnes & Noble will have less downside protection from potential weakness in the book trade. Despite this concern, we would now hold the shares, based on what we see as easier historical sales comparisons through fiscal 2006 (Jan.), which should help to limit the risk of shortfalls to both near-term earnings and longer-term growth prospects.
Harley-Davidson (HDI ) Maintains 3 STARS (hold)
Analyst: Thomas Graves, CFA
Harley Davidson posted third-quarter earnings per share of 77 cents, vs. 62 cents, beating our estimate by 3 cents. Earnings were helped by margin expansion. We are keeping our 2004 earnings per share estimate at $3.00 and our 2005 projection at $3.40. At the end of the third quarter, Harley-Davidson had cash equivalents and marketable securities totaling $1.5 billion, and we look for the company to do further stock repurchases. Based on our 2004 earnings estimates, Harley has a p-e premium of 15% relative to the S&P 500. Based on 2005 earnings estimates, the p-e premium is 11%. Such premiums will limit the near-term upside for the shares. Our 12-month target price remains $66.
McDonald's (MCD ): Upgrades to 4 STARS (accumulate) from 3 STARS (hold)
Analyst: Dennis Milton
McDonald's announced September-quarter earnings per share of 61 cents, significantly above our 4 cents estimate. Results should benefit from strong U.S. sales, improved operating margins, and a 7-cent tax benefit. We are raising our 2004 earnings per share estimate by 17 cents to $1.89, our fiscal 2005 estimate by 10 cents to $1.95, and our 12-month target price by $2 to $32 based on stronger-than-expected sales trends and improving operating margins. Given our view of McDonald's strong sales momentum and product development capabilities, we see shares as attractively valued at 14 times our 2005 earnings per share estimate, in line with its peers.
Intel (INTC ) Maintains 3 STARS (hold)
Analyst: Amrit Tewary
Following Intel's third-quarter earnings call, we think fourth-quarter sales will track slightly below seasonality as the company's distributor and original-equipment-manufacturer customers continue to slow order rates to work off excess inventory. We expect that Intel will continue to slow production in order to bring its own inventory down in line with desired levels. However, we expect this to negatively impact margins in the short term. We are cutting our earnings per share estimates for fourth-quarter fiscal 2004 to 28 cents from 30 cents, for 2005 to $1.25 from $1.29, and for 2006 to $1.20 from $1.24. Our 12-month target price remains at $23.
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