S&P Keeps Hold on Intel

Plus: analysts' opinions on Amgen, Yahoo, Continental Airlines, and more

Intel (INTC ): Reiterates 3 STARS (hold)

Analyst: Amrit Tewary

Following Intel's second-quarter earnings call, we are trimming our third-quarter EPS estimate to 36 cents from 37 cents, keeping full 2005 at $1.47, and raising 2006 to $1.56 from $1.53. For the third quarter, we see 7% sequential sales growth and expect gross margin to widen 360 basis points from the second quarter to 60%. We believe Intel's new 2005 capital expenditure guidance of $5.9 billion, up from $5.6 billion, is an indication of its confidence in near-term demand prospects. Although inventories were down in the second quarter, we believe Intel will add to stockpiles in the third quarter to meet anticipated microprocessor demand. We are keeping our 12-month target price of $30.

Motorola (MOT ): Reiterates 4 STARS (buy)

Analyst: Ken Leon, CPA

Motorola posts second-quarter earnings per share of 25 cents, vs. 17 cents, before special items, 1 cent better than our estimate and the Street's. The quality of earnings improved dramatically, in our view, with 17% top line growth and 110 basis points year-over-year improvement in operating margins to 11.3%. Mobile devices, 56% of total sales, rose 24% year-over-year as Motorola gained market share over key rivals. We expect its broadband unit to grow 15%-20% in 2005 and 2006 as Motorola gains traction with cable and telco carriers. We are raising our 2005 EPS estimate by 5 cents, to $1.05, but are keeping 2006 at $1.15. We are also upping our 12-month target price to $24 from $20.

Amgen (AMGN ): Upgrading to 4 STARS (buy) from 3 STARS (hold)

Analyst: Frank DiLorenzo, CFA

Second-quarter operating earnings per share of 88 cents, vs. 62 cents, is 16 cents above our estimate on strong sales growth, better-than-expected margins, and a tax benefit. Aranesp/Epogen sales were $89 million above our view on strong sequential gains; Neulasta/Neupogen sales were $90 million better; and Enbrel sales were $23 million above. On higher sales and margins, and a lower tax assumption, we raise our 2005 EPS estimate to $3.21, from $2.84, and our 2006 to $3.60, from $3.10. Our 12-month target price rises to $89 from $70, on the assumption that Amgen could trade to a p-e-to-growth of 1.4 times our 2006 forecast, a slight discount to peer average of 1.5 times.

Yahoo (YHOO ): Reiterates 4 STARS (buy)

Analyst: Scott Kessler

Before a one-time gain, Yahoo posts earnings per share of 13 cents, vs. 8 cents, 1 cent worse than we expected. Revenues rose 51%, in line with our forecast, on strength in marketing-services revenues. We are trimming our 2005 EPS estimate to 57 cents, from 59 cents, reflecting the negative impact of forex and rising investment in search, mail, and newly-acquired businesses. Yahoo shares appear lower in premarket trading, as second-quarter results did not exceed Street estimates, and 2005 guidance was not increased. Based on our revised discounted cash flow calculations, we are lowering our 12-month target price to $42 from $44.

General Motors (GM ): Reiterates 1 STAR (strong sell)

Analyst: Efraim Levy, CFA

GM posts second-quarter adjusted loss per share of 56 cents, vs. earnings per share of $2.42. This compares to our forecast of a 57 cents loss, but is much lower than the Street's forecast of 2 cents EPS. We think GM will need further cost improvement in its core U.S. operations to offset increased competitive pressures in China and and other regions, as well as higher interest costs on its finance unit. The level of success of GM's upcoming updated SUVs and other vehicles will be critical to the company's achieving the $3.95 EPS we see for 2006. We will update following this morning's investor conference call.

Continental Airlines (CAL ): Upgrading to 5 STARS (strong buy) from 3 STARS (hold)

Analyst: James Corridore

Second-quarter operating earnings per share of 69 cents, vs. a year-ago loss of 43 cents, beats our 40 cents loss estimate. We have become more positive regarding Continental's ability to offset high oil prices with cuts in labor and other expenses, and we also see revenue trends continuing to improve. We are narrowing our per-share loss estimate for full 2005 to $2.71 from $3.00, and boosting our 2006 EPS estimate to $2.00 from $1.00. We are raising our 12-month target price by $9, to $22, valuing Continental at 11 times our 2006 EPS estimate, which we calculate as in line with past airline valuations during a more normal environment.

Nordstrom (JWN ): Upgrading to 4 STARS (buy) from 3 STARS (hold)

Analyst: Jason Asaeda

We are raising our 12-month target price to $41 from $34 on our updated discounted cash flow and p-e-to-growth models. Given our expectation of a strong fall/winter selling season, which Nordstrom kicked off this month with its Anniversary Sale, we are lifting our fiscal year 2006 (January) EPS estimate to $1.80 from $1.75. We are also initiating our fiscal year 2007 EPS estimate of $2.01. With Nordstrom, in our view, leveraging systems investments to more accurately forecast sales trends and to better plan store-level inventory and expenses, we see operating margins widening to 9.2% in fiscal year 2007, from 7.7% in fiscal year 2005.

Best Buy (BBY ): Downgrading to 3 STARS (hold) from 4 STARS (buy)

Analyst: Amy Glynn, CFA

Following a recent run-up in price, we are downgrading Best Buy shares to hold from buy. We continue to view the company's fundamentals as positive, and see such initiatives as customer centricity conversion and Geek Squad expansion providing new legs for sales growth and margin improvement. But at 23 times our fiscal year 2006 (February) estimate, we think future growth potential is largely reflected in the current valuation. We think the risk profile has risen a bit, particularly since we think investor expectations are high after the strong May-quarter. Our target price stays at $75. The dividend yield is 0.6%.

Chevron (CVX ): Reiterates 4 STARS (buy)

Analysts: Tina Vital, Charles LaPorta

In line with our expectations following CNOOC's (CEO ) late June competing offer for Unocal (UCL ), Chevron has raised its bid and cash portion of the bid for Unocal, offering about $63 a share (based on July 19 Chevron closing price), up about $3 from its earlier bid, and structured as 40% cash and 60% stock, compared with earlier 25% cash and 75% stock. Unocal's board has recommended its shareholders vote in favor of Chevron's offer at their Aug. 10 meeting. While we see Chevron's deal value as below CNOOC's $67 bid, we believe Chevron may not have to match it, because of various delays the CEO may face.

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