S&P Keeps Hold on DreamWorks

Plus: analysts' opinions on Research in Motion, Cisco Systems, and more

DreamWorks Animation (DWA ): Maintain 3 STARS (hold)

Analyst: William Mack, CFA

In its first full quarter as a public company, DWA posts first-quarter earnings per share of 44 cents. The shortfall to our 56-cents forecast reflects sharply decelerating sales of Shrek 2 home video units from the pace set by their early holiday release. We now see Madagascar, opening May 27, accounting for most of our 2005 EPS estimate of $1.27, reduced today from $2.15, and we assume that overall Shrek 2 sales will barely meet their costs. We are lowering our 12-month target price, based on discounted cash flow (DCF) methodology, to $35 from $44, primarily reflecting lower projected free cash flows in base year 2005.

Research In Motion (RIMM ): Reiterate 5 STARS (strong buy)

Analyst: Kenneth Leon, CPA

We are positive on RIMM's outlook, with estimated fiscal year 2006 (February) 50% sales growth driven by 5 million BlackBerry subscribers by yearend. At yesterday's analyst meeting, RIMM highlighted new areas of growth besides its key drivers, including global expansion to more than 170 carriers worldwide and 42,000 BlackBerry enterprise servers to date. Software upgrades, in our view, will allow enterprise firms to expand features for notes and group use; consumers may expect instant messaging, and small business may get BlackBerry Internet Server capability in a small package. Our target price is $84.

Cisco Systems (CSCO ): Reiterate 5 STARS (strong buy)

Analyst: Ari Bensinger

Cisco Systems posted April-quarter earnings per share of 23 cents, vs. 19 cents a year ago, 1 cent above our estimate. Sales increased 2% sequentially, at the high-end of guidance, despite a seasonally challenging quarter. We were impressed with Cisco's increased service provider penetration, and we forecast material share gains across all major router segments. The company confirms guidance for 12%-13% sales growth during fiscal year 2005 (July). With its broad portfolio, we view Cisco as best positioned to offer integrated networking solutions. Based on a blend of intrinsic and relative analyses, our 12-month target price is $23.

United Parcel Service (UPS ): Reiterate 3 STARS (hold)

Analyst: James Corridore

UPS says its domestic volumes in the second quarter are ahead of expectations, and international export volumes should rise at a double-digit rate. As a result, it reiterates guidance of 16%-20% EPS growth for 2005, implying EPS of $3.36-$3.48. We are staying at $3.46. UPS says the integration of Menlo is ahead of schedule; Synergies of $50 million to $100 million are expected in 2006 and $200 million in 2007. We are keeping our 12-month target price at $75, 22 times our 2005 estimate, low in its historical range to reflect our worries about contraction in the valuation of logistics companies in the later stages of an economic cycle.

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