S&P Keeps Buy on J&J
Johnson & Johnson (JNJ ): Keeps 4 STARS (buy)
Boston Scientific (BSX ): 3 STARS (hold)
Analyst: Robert Gold
A Netherlands court ruled that Johnson & Johnson infringed a Boston Scientific patent related to a catheter shaft used in delivery system for Cypher drug-coated stents from Johnson & Johnson's Cordis unit, along with some other catheter-based products. We do not believe Cypher sales in the Netherlands are material to Johnson & Johnson, and think suspension of Cypher production from plants in the Netherlands will not meaningfully impact non-U.S. Cypher revenues. In our opinion, this ruling is far less significant than other pending stent-related litigation between Boston Scientific and Johnson & Johnson set to start in coming months.
Computer Associates (CA ): Maintains 3 STARS (hold)
Analyst: Zaineb Bokhari
Computer Associates agrees to acquire Niku Corp., a provider of IT governance solutions, for $21 a share, a 27% premium to Niku's closing price yesterday. The all-cash proposed deal values Niku at about $350 million, or about 5.3 times its fiscal 2005 (ending January) sales of $66 million and about 4.3 times sales, net of the company's cash position at Jan. 31. Subject to approvals, the transaction is expected to close in approximately three months. Computer Associates became a reseller of Niku's software in January 2005, and we expect product integration issues to be fairly minor, if the deal is consummated.
H&R Block (HRB ): Reiterates 3 STARS (hold)
Analyst: Andrea West, CFA, Michael Jaffe
April-quarter earnings per share of $3.66, vs. restated $3.24 matches our forecast, on profit gains in tax and business areas. We are encouraged by 1,200 tax office openings in fiscal 2005 (ending April) and plans for 500 to 700 more in fiscal 2006, since we agree with H&R Block that its lack of a strong growth plan let rivals gain share. We are raising our fiscal 2006 earnings per share estimate by 10 cents to $4.05. We think H&R Block is fairly valued at 14 times that estimate, a discount to the S&P 500, given our modest growth outlook and pending shareholder suits. We are upping our 12-month target price $6 to $57, based on revised discounted-cash-flow and relative value models.
Xilinx (XLNX ): Reiterates 3 STARS (hold)
Analyst: Amrit Tewary
In a mid-quarter update, Xilinx maintains its original June-quarter guidance, still forecasting sales growth of flat to up 4% from March-quarter and sequentially flat gross margin of 61%. Though guidance is unchanged, we believe some investors may have been expecting a raised outlook, given competitor Altera's upward revision to its sales guidance last week. We are keeping our June-quarter earnings per share estimate at 21 cents, and still see full fiscal 2006 (ending March) at 94 cents. We would hold Xilinx, based on our belief that current valuation multiples are justified by moderate growth outlook and some macro risks.
Research In Motion (RIMM ): Maintains 5 STARS (strong buy)
Analyst: Kenneth Leon, CPA
Research In Motion (RIMM) is indicated to open lower following news that because of an impasse in finalizing a definitive licensing and settlement pact with NTP Inc., RIMM is taking court action. In March 2005, both agreed upon a term sheet resolving their litigation, including a $450 million payment by RIMM to NTP Inc., but that firm appears to be backing out. RIMM has filed a motion with the U.S. Court of Appeals to remand the case to a lower court to enforce the settlement agreement.