S&P Boosts Google Target to $300

Analyst Scott Kessler also hiked his EPS forecast and kept his buy opinion on the Web search giant. Plus: Opinions on Eastman Kodak, Nokia, Alcon, and more

Google (GOOG ): Reiterates 4 STARS (buy)

Analyst: Scott Kessler

Google shares are rising in pre-market trading, as it posts first-quarter earnings per share of $1.29, vs. 53 cents, well above our $1.02 estimate. These numbers exclude stock-compensation expense, and the first-quarter 2005 earnings per share accounts for a reversal of $48.5 million tax benefit. Revenues rose 93%, above our 92% estimate, with 116% growth from Google sites and 75% from Google affiliates. Margins were expanded notably on greater scale and efficiencies. We are raising our 2005 earnings per share forecast to $4.76 from $4.17 on projected margin expansion. Based on peer and revised discounted-cash-flow analyses, we are raising our 12-month target price to $300 from $260.

Eastman Kodak (EK ): Downgrades to 2 STARS (sell) from 3 STARS (hold)

Analyst: Richard Stice, CFA

Inventory levels rose 15% sequentially. Eastman Kodak continues to expect worldwide consumer film volumes to decline by 20% in 2005. We are disappointed by its first-quarter results, particularly given our prior view of improving execution. We are reducing our full 2005 earnings per share estimate by 34 cents to $2.36. Our 12-month target price declines to $24 from $36, based on updated growth and risk assumptions within our discounted cash flow model combined with a relative p-e-to-growth metric. Given our renewed uncertainty regarding the company's digital progress, we advise investors to sell the shares.

Nokia (NOK ): Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Subhajit Gupta, CFA

Our recommendation is based on valuation. Nokia posted first-quarter earnings per ADS of 25 cents (0.19 euro), vs. 33 cents (0.25 euro), above our 22 cents (0.17 euro) estimate, reflecting improved product mix and good cost control. On top of better-than-expected industry volume growth, we expect Nokia to gain modest market share at the cost of the smaller players. While we are convinced of Nokia's long-term strength of brand, distribution, research and development and supply chain management, we expect a gradual erosion of gross margins. Based on our revised discounted cash flow and p-e metrics, we are raising our target price by $1 to $17.

Alcon (ACL ): Reiterates 4 STARS (buy)

Analyst: Phillip Seligman

Alcon beats our first-quarter earnings per share estimate by 5 cents, posting 80 cents, vs. 61 cents. We are encouraged by sales growth in pharmaceuticals, intraocular lenses, and artificial tears. We view the growth, aided by new products, as mostly sustainable over the next 3 to 5 years. We are also encouraged by improving manufacturing efficiencies, product mix, and cost controls. We are raising our 2005 earnings per share estimate by 10 cents to $3.30, and we see $3.72, after an 8-cent stock option expense, in 2006. Our projected forward p-e goes to 32 times from 31 times, matching 2003's high, and our 12-month target price rises by $6 to $106.

Scientific-Atlanta (SFA ): Reiterates 4 STARS (buy)

Analyst: Ari Bensinger

Scientific-Atlanta posted March-quarter earnings per share of 40 cents, vs. 34 cents, above our 39 cent estimate. Revenue increased 11% on 1.1 million set-tops shipped, in line with our forecast, reflecting demand from operators Time Warner and Cablevision. Scientific-Atlanta also completes a two-year set-top product extension with Cablevision. We see numerous catalysts for Scientific-Atlanta, including network overlays and international expansion, especially for high definition set-tops in Japan, and telecom video sales. We are increasing our fiscal 2005 (ending June) earnings per share estimate to $1.57 from $1.54. Based a blend of discounted-cash-flow and p-e metrics, our 12-month target price is $33.

SanDisk Corp. (SNDK ): Maintains 3 STARS (hold)

Analyst: Richard Stice, CFA

SanDisk posted first-quarter earnings per share of 39 cents, vs. 34 cents, 6 cents above our estimate. Revenues increased 17%, but were below our forecast. Product gross margin came in above our estimate. Average price per megabyte decreased by 10% sequentially, notably better than the 34% sequential decline in the fourth quarter. We expect 2005 results to be somewhat restricted by start-up expenses associated with SanDisk's new facility. We are raising our 2005 earnings per share estimate by 13 cents to $1.56. But, we are concerned with the rise in first-quarter inventory levels and what we expect will be a more aggressive competitive environment.

Fortune Brands (FO ): Reiterates 5 STARS (strong buy)

Analyst: Howard Choe

First-quarter earnings per share of $1.02, vs. 92 cents, is a penny above our estimate and in line with the Street's. We view sales and earnings per share growth of 5% and 11%, respectively, as impressive, given growth of 23% and 32% a year ago. Remodeling and new construction continue to drive strong growth in the home/hardware segment. For the balance of the year, we see new products, easier comparisons and the closing of the Allied Domecq deal as catalysts. We view the shares as very attractive on a current p-e-to-growth basis of 1.4, compared to 1.5 for the S&P 500, as well as the discount to our $109 target price.

Halliburton (HAL ): Reiterates 3 STARS (hold)

Analyst: Stewart Glickman, Tina Vital

Halliburton posted first-quarter earnings per share of 58 cents, excluding a 14-cent gain on sale of 50% interest in Subsea 7, vs. 31 cents, above our estimate of 47 cents. Operating margin about doubled, reflecting better-than-expected performance by the energy services group in North America on increased oilfield service activity, and the KBR unit's restructuring efforts and government work in Iraq. No timeline has been announced for possible separation of KBR. Based on revised projections, our 2005 operating earnings per share estimate rises by 11 cents to $2.04, but our 2006 earnings per share estimate stays $2.32. We are raising our target price by $1 to $46.

Costco Wholesale (COST ): Reiterates 4 STARS (buy)

Analyst: Jonathan Agnese

Costco sees fiscal 2005 (ending August) operating earnings per share of $1.98 to $2.04, below our $2.10 projection. The company expects rising gasoline prices to negatively impact fiscal 05 gas margins and overall gross margins. As a result, we are reducing our fiscal 2005 operating earnings per share estimate by 9 cents, to $2.01, at the mid-point of guidance range, and our 12-month target price by $3, to $48, based on our p-e and discounted-cash-flow analyses. However, we view Costco's balance sheet as strong, and see long-term growth trends on track, with merchandise sales and membership growing, expenses improving, and club store growth accelerating.

Hershey Company (HSY ): Maintains 3 STARS (hold)

Analyst: Richard Joy

Hershey posted first-quarter earnings per share of 47 cents, vs. 41 cents, a penny above our estimate. Sales rose 11%, on acquisitions and 8.3% organic growth. Hershey had solid market share gains in first-quarter, and we see those gains continuing on new products. We are raising our 2005 earnings per share estimate by 4 cents, to $2.34. And given strong organic growth trends, we are increasing our target price by $7 to $67. We view Hershey shares as worth holding, based on our view of strong brand momentum and cash flow. But at 27 times our 2005 estimate, a sizable premium to p-e's for the S&P 500 and comparable peers, we see limited near-term upside potential.

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