S&P Downgrades Motorola

Plus analysts' opinions on Yahoo!, IBM, and more

Motorola (MOT ): Downgrades to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Kenneth Leon, CPA

Motorola posted fourth-quarter earnings per share of 28 cents, vs. 17 cents, excluding special items, 2 cents better than our estimate and the Street's. Sales rose 27%, driven by strong handset sales (up 51%) and double-digit growth in all businesses. Motorola shipped a record 31.8 million handsets in the fourth quarter, and we believe it gained market share as the number two ranked supplier. Despite strong results, Motorola is guiding a weaker first quarter, as handset and system sales are expected to slow down. We are lowering our 2005 earnings per share estimate by 5 cents to 95 cents, and introducing $1.10 as our 2006 estimate. We are lowering our target price to $20 from $22.

Yahoo (YAHOO ): Reiterates 4 STARS (buy) and raises its 2005 estimate and target price

Analyst: Scott Kessler

Excluding one-time items such as the sale of Google stock in the fourth quarter, Yahoo reported fourth-quarter earnings per share of 13 cents, vs. 5 cents, 3 cents above our forecast. Revenues rose 62%, paced by a 67% gain in marketing services (84% of revenues), reflecting demand for display and search advertising. We believe Yahoo gained share in the online advertising market in the fourth quarter. We are raising our 2005 earnings per share forecast to 57 cents from 52 cents, reflecting what we expect will be continuing momentum in Internet advertising. We are also increasing our 12-month target price to $45 from $41, based on revised discounted-cash-flow analysis.

International Business Machines (IBM ): Reiterates 5 STARS (strong buy)

Analyst: Megan Graham-Hackett

IBM posted fourth-quarter earnings per share of $1.81, vs. $1.56, above our $1.70 estimate. Revenue rose 7%, beating our model on share gains in servers and as growth in Global Services (up 10%), and Software (up 7%) also exceeded our estimates. We trim our 2005 earnings per share estimate by 10 cents to $5.70, partly reflecting a higher pension hit, vs. our prior estimate, but note that IBM's cash generation and share gains in 2004 were above our forecast. We believe IBM's focus on differentiating its products and services from peers is gaining traction. With shares trading below our discounted-cash-flow-derived target price of $115, we view as attractive.

Advanced Micro Devices (AMD ): Reiterates 3 STARS (hold)

Analyst: Amrit Tewary

AMD posted a fourth-quarter loss of 8 cents, vs. earnings per share of 12 cents. Excluding a 13-cent charge for the conversion and retirement of debt, earnings per share of 5 cents was below our 8 cents forecast. Total revenues were up 2% sequentially, as 8.5% growth in the computation group more than offset a 6.3% decline in the memory group. We believe AMD lost revenue share to Intel in the fourth quarter in both the flash memory and microprocessor markets. We are cutting our first-quarter earnings per share estimate to 2 cents from 5 cents, and 2005's to 32 cents from 46 cents. Our 12-month target price remains $17, based on our price-to-sales analysis.

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