S&P Keeps Hold on Google

Plus analysts' opinions on eBay, Hewlett-Packard, and more

Google (GOOG ): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

An unconfirmed story that appears in today's Wall Street Journal suggests Google is readying electronic-payment and classifieds offerings. We think a payment service is entirely plausible, as Google aims to diversify its businesses and establish/strengthen relationships with end-users and advertisers/merchants. We believe such a service could be effectively promoted to Froogle and advertising-customer merchants. We also think a new classifieds service would make sense, and could be greatly enhanced and competitively more enviable with embedded payment capabilities.

eBay (EBAY ): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Shares are lower in pre-market trading following the publication of an unconfirmed story in today's Wall Street Journal that suggests Google is readying an electronic-payment classifieds service. Of importance, in our opinion, is the potential notable competition to eBay's PayPal segment, which contributed 23% to its first-quarter net revenues. Auctions, almost entirely eBay's, represented 70% of PayPal's first-quarter revenues. We believe Google would have some difficulty penetrating eBay's auction merchants, but we see Google's advertising relationships as competitively beneficial.

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

Analyst: Megan Graham-Hackett

An article in today's Wall Street Journal reiterated H-P's strategy to focus on new growth areas in its Imaging and Printing group, as greater competition in printers threaten future margin-rich ink sales. This strategy has been in place for a while and we believe got some recent support from the split of Hewlett Packard's PC and Printing units. Given H-P's dependence on printing profits (comprises about 60% of our fiscal 2005 (ending October) operating income estimate), we believe its printing initiatives in the next six months are key to future profit growth. At a price/share of 0.8 times, below peer average, we view the stock as worth holding.

Guidant (GDT ): Keeps 3 STARS (hold)

Johnson & Johnson (JNJ ): 4 STARS (buy)

Analyst: Robert Gold

We do not think there are significant technological issues at hand within Guidant's defibrillator product lines, as evidenced by the low disclosed rate of defects. However, we think Guidant should have been more proactive and transparent in the physician and FDA notification process. In our view, the recent ICD recalls will drive a thorough assessment of the problems and Guidant actions by Johnson & Johnson, ahead of its planned purchase of Guidant. But, we still expect a late third-quarter closing. Assuming no significant defibrillator share loss, we see minimal financial impact on Guidant from the product actions.

Motorola (MOT ): Reiterates 4 STARS (buy)

Analyst: Kenneth Leon, CPA

We believe Motorola is well positioned to take advantage of disruptive wireless technologies that are emerging as substitutes for cable and DSL wireline services. A Wall Street Journal article covers AT&T's WiMAX trials, to be launched in Georgia, following BellSouth's release last week. We see certification of a WiMAX 802.16 standard later this year and the rollout of WiMAX chips from Intel by yearend. In our view, Motorola has broader capabilities than its peers for offering a full alternative or hybrid solutions of cellular and emerging wireless technologies.

Cablevision (CVC ): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Cablevision surges 25% in early trading as majority holder Dolan Family plans a cable privatization, plus spin-off of assets in a $6.8 billion deal. If approved as proposed, each Cablevision shareholder would get $21 cash for cable ($4,400 enterprise value per subscriber, lofty in our view), plus an estimated $21 per share stake in Rainbow Media. C. Dolan would remain chairman of the private cable company, COO Rutledge would rise to CEO and current CEO J. Dolan becomes Chairman and CEO of Rainbow. We see the timing as surprising, but think the move is consistent with recent media trends. Our target price rises by $4 to $34.

ImClone Systems (IMCL ): Reiterates 4 STARS (buy)

Analyst: Frank DiLorenzo, CFA

ImClone announces plans to file a supplemental Biologics License Application for Erbitux to treat squamous cell carcinoma of the head and neck in combination with radiation therapy. The submission would be one quarter ahead of expectations. We assume a six-month review and FDA approval by the end of first-quarter 2006. We continue to forecast Erbitux sales of $402 million in 2005 and $557 million in 2006. Our earnings per share estimates remain $1.03 for 2005 and $2.03 for 2006. Based on our net present value analysis of Erbitux (assuming peak U.S. sales of $1.4 billion in 2012), and ImClone's pipeline and cash, our 12-month target price stays at $42.

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