S&P Keeps Hold on RadioShack
RadioShack (RSH ): Reiterates 3 STARS (hold)
Analyst: Amy Glynn, CFA
RadioShack enters into 10-year and 11-year agreements, respectively, for Cingular Wireless and Sprint (FON ) to be long-term wireless providers in RadioShack stores. Cingular products and services are expected to become available in January and will provide RadioShack entry into the GSM market. The company plans to discontinue selling Verizon Wireless at year-end 2005 as, we believe, RadioShack was losing market share to the carrier's own stores. RadioShack says it has initiatives in place to offset costs of this transition, and still sees 2005 EPS of $1.80-$1.90.
Procter & Gamble (PG ) : Reiterates 5 STARS (strong buy)
Analyst: Howard Choe
June-quarter earnings per share of 56 cents, vs. 50 cents, is in line with our estimate. We are encouraged by strength in volume growth, and we see 2006 rise at least at high end of P&G's 4%-6% forecast. We think raw material inflation is likely to be a drag in next few quarters but that easier comps await. We look for close of the planned merger with Gillette (G ), subject to needed approvals, and strong volume growth as main catalysts over next 12 months. Given our view of P&G's strong sales momentum and leading market positions in attractive categories and markets, we strongly recomend purchase.
IAC/InterActiveCorp (IACI ): Reiterates 3 STARS (hold)
Analyst: Scott Kessler
IAC/InterActiveCorp announces that newly acquired Ask Jeeves will offer sponsored listings and more directly compete with Google (GOOG ) and Yahoo (YHOO ). We forecast U.S. keyword search advertising revenues will rise 34% in 2005 and 27% in 2006, and believe IACI will garner some success in establishing market share. U.K.-sponsored listings are expected within 12 months. Ask Jeeves accounted for 5.6% of Google's first-quarter revenues, and the Ask Jeeves/Google contract is not set to expire until December, 2007. We see this news as modestly negative for Google and Yahoo.
Nokia (NOK ): Maintains 3 STARS (hold)
Analyst: Ken Leon, CPA
We see Nokia's succession plan for its president and CEO as positive from a corporate governance and shareholder viewpoint. Nokia states that Olli-Pekka Kallasvuo, 52 years old, will become president and COO effective Oct. 1, 2005, and then president and CEO effective June 1, 2006, replacing Jorma Ollila, who will stay on as non-executive Chairman after June 1, 2006. We believe Kallasvuo is ably qualified for his new position. While we see long-term competitive challenges for Nokia, priced below peers on p-e and other valuation metrics, we would hold the ADSs. Our target price is $17.
Maxim Integrated Products (MXIM ): Downgrading to 3 STARS (hold) from 5 STARS (strong buy)
Analyst: Amrit Tewary
After the stock run-up in July, we now view shares as fairly valued, ahead of June-quarter results. We think September-quarter guidance will likely disappoint investors. Based on our analysis of relevant industry data points, we think our earlier expectation of 2% sequential sales growth was too aggressive. On weaker bookings than anticipated, we expect Maxim will guide for flat September-quarter sequential sales. We are keeping our June-quarter estimate at 37 cents, but cutting September-quarter's to 37 cents from 39 cents and fiscal year 2006 (June) to $1.61 from $1.67. We are lowering our target price to $47 from $52 on revised p-e and price/sales.
Washington Mutual (WM ) and Providian Financial (PVN ): Reiterates 3 STARS (hold)
Analysts: Jason Seo, CFA and Mark Hebeka, CFA
Putnam Investments and Putnam Mutual Funds' board of trustees announced today the intention of voting against Washington Mutual's planned acquisition, pending approvals, of Providian Financial. As of June 30, Putnam had voting power on about 7.5% of Providian shares. It says Providian represents "an increasingly scarce asset that should command a higher price." While we believe this greatly increases the risk that the proposed deal will fall through, we are awaiting comment from other large institutional shareholders. Our 12-month target price for Washington Mutual remains $44. Our 12-month target price for Providian remains $20.
CNET Networks (CNET ): Upgrades to 2 STARS (sell) from 1 STAR (strong sell)
Analyst: Scott Kessler
We think the shares have been buoyed recently by decent second-quarter results and unconfirmed speculation about CNET as a possible takeover candidate. But the company's recent growth in page views and revenues have been aided notably by acquisitions that have negatively impacted its balance sheet. We think related equity financing is possible. We see impending competition in the consumer technology segment from Yahoo as near-term negative. Our upgrade to sell reflects the possibility that CNET may be acquired at a premium to its current price, though we have doubts that such a deal will occur.