S&P Downgrades eBay Shares

Plus analysts' opinions on H-P, Bank of New York, and more

EBay (EBAY ): Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Scott Kessler

From Sept. 27 through Nov. 29, eBay stock appreciated 27%; year to date through Nov. 29, its shares have risen 74%. Although we are raising our 12-month target price to $119 from $111, reflecting a slightly lower discount rate calculation in our discounted cash-flow model, we think eBay is now fairly valued. We have become increasingly wary of eBay's premium 2005 p-e and p-e-to-growth measures relative to many of the company's peers and the S&P 500 index. Even so, we still consider eBay a compelling franchise in the Internet segment, with emerging growth drivers in its international and payments businesses.

Hewlett-Packard (HPQ ): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

The Nov. 30 edition of The Wall Street Journal includes an interview with H-P's CEO Carly Fiorina, in which she reiterates a strategy of increasing the share of "customers' wallets," by better leveraging H-P's product portfolio, and admits inconsistency has limited the company's share price. We believe recent cost reduction programs are aimed at enabling better consistency, but we believe more work has to be done, including adding a COO. We believe if H-P's CFO retires, appointment of a COO is more likely. While Hewlett-Packard trades below its peers on a price-to-sales basis, we see the shares as fairly valued given our view of operational challenges.

Bank of New York (BK ): Downgrades to 2 STARS (sell) from 3 STARS (hold)

Analyst: Evan Momios, CFA

Over the past three months Bank of New York shares have risen more than 11%, outperforming peers. We think investors correctly view Bank of New York as a direct beneficiary of improved market activity and have assigned it a premium valuation. But, we also think Bank of New York is facing above-average legal and regulatory risks not reflected in its valuation. An unconfirmed report in today's Wall Street Journal states that there has been suspicious branch activity at Bank of New York. We think that risks outweigh potential rewards and that Bank of New York shares will underperform. We are lowering our target price by $5 to $29, 13.5 times our 2005 earnings-per-share estimate.

E*Trade Financial (ET ): Reiterates 5 STARS (strong buy)

Analyst: Robert Hansen, CFA

At a conference today, E*Trade highlighted product depth and integration among its brokerage and banking businesses. We see higher trading volumes, market share gains and wider net interest spreads in 2005, driven by the sweep of additional brokerage cash balances. We are leaving our earnings-per-share estimates at 92 cents for 2004, and at $1.05 for 2005. Our 12-month target price remains $18, or about 17 times our 2005 earnings-per-share estimate. We think E*Trade maintains a sustainable competitive advantage, and we maintain our strong buy opinion on the shares, which we view as attractive.

Fannie Mae (FNM ): Reiterates 2 STARS (sell)

Analyst: Erik Eisenstein

Today's Wall Street Journal reported that a federal judge has ordered Fannie Mae to forfeit $6.5 milion. The ruling reportedly stems from Fannie Mae's failure to notify the Government National Mortgage Association of fraudulent loans once in Fannie Mae's possession, that were subsequently sold to the government agency. According to the story, Fannie Mae has until January to respond. If true, this has the potential to embarrass Fannie Mae at a politically-sensitive time. However, we view both the political and financial effect as mimimal relative to other challenges Fannie Mae faces. Our 12-month target price remains $56.

AmeriTrade (AMTD ): Reiterates 4 STARS (buy)

Analyst: Robert Hansen, CFA

At a conference today, AmeriTrade highlighted its organic account growth, high pre-tax margins, and successful acquisition strategy. We expect higher trading volumes, increased margin balances, and strong client asset growth to benefit earnings-per-share growth in fiscal 2005 (Sept.) on significant operating leverage. We are maintaining our fiscal 2005 earnings-per-share estimate at 75 cents. Our 12-month target price remains $16, or about 21 times our fiscal 2005 earnings-per-share estimate. Despite AmeriTrade's Nasdaq focus, and our view of increased price competition, we think the company maintains a competitive advantage and we would buy the shares.

TriQuint Semiconductor (TQNT ): Reiterates 3 STARS (hold)

Analyst: Zaineb Bokhari

TriQuint announced a restructuring of its optoelectronics business, including plans to discontinue pluggable optical modules and to reduce headcount by nearly 10%. The company expects its remaining optoelectronics business to reach cash breakeven by mid-2005. After $20 million to $21 million in net charges in the fourth quarter and approximately $1.9 million in the first quarter, TriQuint expects to lower its expenses by $4.5 million per quarter by the second quarter. We are maintaining our estimates for losses of 9 cents and 4 cents in 2004 and 2005, respectively. We will revisit our estimates when TriQuint updates its guidance on Dec. 14.

Semtech (SMTC ): Reiterates 3 STARS (hold)

Analyst: Amrit Tewary

Semtech posted October-quarter earnings per share of 19 cents, vs. 12 cents, 2 cents below our estimate. Sales of $65.0 million were about in line with our expectations, but margins came in below our forecast. The company sees January-quarter earnings per share of 16 cents on a sales decline of about 9% from the October-quarter. On lower sales and margin assumptions, we are cutting our January-quarter earnings-per-share estimate to 16 cents from 19 cents, full fiscal 2005's (Jan.) to 76 cents from 81 cents, and fiscal 2006's to 84 cents from 94 cents. However, given the increase in peer valuation multiples since early September, we are keeping our 12-month target price at $22, based on our p-e and price-to-sales analyses.

Cablevision Systems (CVC ): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

We are raising our target price by $1 to $23 on our view of Cablevision's cable-only enterprise value/subscriber ratio of $3,500. We are cautiously optimistic on its core "triple-play." But as Cablevision spins off Rainbow DBS, possibly in the next few weeks, we are wary of long-term residual funding exposure and the commercial viability of what seems like a fledgling satellite venture. We note that last week, after Rainbow signed a $740 million contract with Lockheed Martin to procure five Ka-band satellites over 38 to 50 months, Cablevision said it had not identified funding beyond the first-year payment of $48 million.

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