S&P Keeps Buy on Teva Pharmaceutical

Ivax gets downgraded on merger deal with Teva, plus analysts' opinions on BellSouth, Whirlpool, and more

Teva Pharmaceutical (TEVA ): Reiterates 4 STARS (buy)

Analyst: Phillip Seligman

We are encouraged by Teva's plan to acquire Ivax (IVX ), a branded and generic drugmaker, for $7.4 billion in cash and stock in late 2005/early 2006, pending necessary approvals. At the close, 15% of Teva would be owned by Ivax holders. We see this deal boosting Teva's presence in Central and Eastern Europe and Latin America and expanding its product line and pipeline, enabling Teva to grow faster than on its own. The companies see the deal as accretive to earnings in the first year, and $150 million in sales and cost synergies in the first 2 years. Our 12-month target price for Teva remains $38.

Ivax (IVX ): Downgrading to 3 STARS (hold) from 5 STARS (strong buy)

Analyst: Herman Saftlas

Ivax agrees to be acquired by Teva for $7.4 billion in cash and stock, subject to approvals. Under terms of the deal, Ivax holders will have option of exchanging each Ivax share for either $26 in cash or 0.8471 ADR of Teva, subject to proration that half of the total deal will be in stock and half in cash. Our downgrade reflects our view that there are no other buyers in the wings. We expect the deal to be consummated in late 2005 or early 2006 at $26 per share, as announced, matching what has been our 12-month target price.

BellSouth (BLS ): Maintains 2 STARS (sell)

Analyst: Todd Rosenbluth

(Update) Following BellSouth's conference call on second-quarter results, which beat our EPS estimate by 5 cents, we are raising our 2005 and 2006 estimates by 11 cents and 3 cenbts, respectively, to $1.65 and $1.78. We expect greater contribution to BellSouth's revenues from Cingular, and are also cutting our consolidated depreciation expense forecast. However, we think EBITDA margins will be pressured in the near term by recent DSL discounts, access line losses, and ongoing wireless integration. Based on our revised estimates, we are raising our target price by $1 to $25. But we continue to believe shares are overvalued.

Xerox (XRX ): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

(Update) Xerox posts second-quarter earnings per share of 20 cents, vs. 21 cents, a penny below our estimate, limited by a mix shift toward lower-end systems. We expect this will also impact third-quarter EPS, which we are reducing by 3 cents, but see a combination of restructuring actions and benefits from new products to ramp by the fourth quarter and we are raising that estimate by 3 cents. We have trimmed our full 2005 estimate by a penny. However, second-quarter post-sale activity and growth in color systems are reinforcing our view that Xerox's turnaround, while gradual, remains intact. At a price/sales of 0.8, within the range of peers, we view Xerox as fairly valued.

Whirlpool (WHR ) and Maytag (MYG ): Reiterates 3 STARS (hold)

Analyst: Amy Glynn, CFA

Whirlpool raises its bid for Maytag by $1 to $18 per share, saying the offer could also include a reverse break-up fee and/or payment of Ripplewood's $40 million break-up fee. Maytag says it believes the deal may "reasonably be expected to lead to a transaction that is financially superior" to Ripplewood's $14 a share bid, but continues to back Ripplewood's offer based on uncertainties surrounding the Whirlpool bid. Maytag still has not agreed to open its books to Whirlpool, but we think it will move in that direction. We expect shareholders to vote against the Ripplewood transaction at Maytag's Aug. 19 shareholder meeting.

Motorola (MOT ): Reiterates 4 STARS (buy)

Analyst: Ken Leon, CPA

Ahead of Motorola's analyst meeting tomorrow, Barron's published favorable comments on the company's new handset product roadmap and its improved competitive ranking against wireless peers. We believe Motorola's challenge is to balance the expanded distribution of low-end handsets in developing countries against its goal of being a wireless innovator with high-end mobile devices. We see the relationship with Apple (AAPL ) for the delivery of iTunes music on Motorola devices as another source of growth. Motorola is also on track for WiMAX and other hybrid planned wireless broadband networks.

Reuters (RTRSY ): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Yannick Mathieu, CFA

We believe our expectations of organic revenue growth, which we expect to resume in the second half of 2005, are not reflected in the stock price. Given our view of Reuters' improved outlook and record of reducing costs, we think the stock's risk profile has declined, leading us to upgrade. Also, starting no later than 2006, we expect Reuters to repurchase stock. Assuming the pending sale of Instinet ownership is completed by yearend 2005, but excluding any Reuters stock buybacks, we estimate 2006 earnings per ADS at $2.39. We are keeping our $48 target price; the ADSs have a 2.6% yield.

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