S&P Keeps Strong Buy on McAfee

Also: Analysts' opinions on Royal Dutch Shell, Netgear, and others

McAfee (MFE ): Reiterates 5 STARS (strong buy)

Analyst: Jonathan Rudy, CFA

McAfee's second quarter operating EPS of 31 cents, vs. 8 cents one year earlier, is 5 cents above our estimate. Revenues of $245 million exceeded our $237 million projection. The company cites its consumer business, which grew 69% from a year ago, and the Asia/Pacific region, which increased 53%. We are raising our 2005 operating EPS estimate to $1.23 from $1.18, and see $1.40 in 2006. With approximately $1.1 billion in cash and investments -- about $6.40 per share -- no debt, and with the stock trading at a discount to McAfee's Internet security peers on a p-e-to-growth basis, we would buy the shares. We are raising our 12-month target price to $36 from $32 on relative valuation analyses.

Royal Dutch Shell (RD ): Reiterates 3 STARS (hold)

Analyst: Tina Vital

Royal Dutch Shell posted second quarter operating earnings per American Depositary Receipt of $1.59, vs. $1.15. Results were 8 cents below our estimate on lower-than-expected oil price realizations, natural gas production, and gas and power earnings, as well as higher unit operating expenses. Oil & gas production dropped 1.5% to 3.53 million barrels of oil equivalent per day, and we expect volumes will remain near these levels for the rest of 2005. We are trimming our 2005 earnings per ADR estimate by 10 cents to $6.33, our 2006 forecast by 20 cents to $6.16, and our 2007 projection by 24 cents to $5.79. However, blending discounted cash-flow and peer multiples, our target price rises by $3 to $68.

Banco Santander Central Hispano (STD ): Reiterates 2 STARS (sell)

Analyst: R. Shah

The company posted second quarter earnings per ADS of 27 cents, vs. 35 cents, ahead of our 24-cent estimate. Volume growth in Spain and Latin America was strong but U.K. revenues were hampered by weak market conditions and savings and mortgage redemptions. While the revenue environment has been difficult, we think the company has gained control of the cost base of its recently acquired Abbey unit. Based on higher revenue expectations and currency fluctuations, we are raising our 2005 earnings per ADS estimate by 3 cents to 92 cents and our 2006 forecast by 5 cents to $1.03. We are raising our target price by $1 to $12, 12 times our 2006 estimate, a premium to peers.

Netgear (NTGR ): Reiterates 5 STARS (strong buy)

Analyst: Megan Graham-Hackett

The company posted second quarter EPS of 25 cents, vs. 14 cents, one cent above our estimate (2 cents above excluding a charge for forex) as gross margin was 300 basis points above our model. Revenues grew 22% to $108 million, 1% below our model, as a weak European economy caused channels to lower inventories in that area. While Netgear is using higher gross margin dollars to invest in revenue growth going forward, we now see operating margins 100 basis points above our model, and are raising our 2005 EPS estimate by 2 cents to $1.04. With the shares trading below peers on price-to-sales basis and below our DCF-derived 12-month target price of $26, we view Netgear as undervalued.

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