S&P Keeps Sell Ranking on Kodak

Analyst Richard Stice believes much work remains to be done at Kodak. Plus: analysts' opinions on Six Flags, TiVo, and more

Eastman Kodak (EK ): Reiterates 2 STARS (sell)

Analyst: Richard Stice, CFA

Kodak sets a plan to reduce manufacturing capacity at operations in the U.S. and China. The move is part of its previously announced restructuring program and should result in a workforce reduction of about 900 and $153 million in charges. We view the plan as necessary in order for Kodak to more aggressively pursue the digital marketplace. However, we believe much work remains to be done. Given ongoing uncertainty with respect to the digital transition and our concerns related to management's forecasting ability, our recommendation is to sell. Our 12-month target price remains $23.

Six Flags (PKS ): Upgrades to 4 STARS (buy) from 3 STARS (hold)

Analyst: Gary McDaniel

Six Flags announces that it intends to initiate an auction of the company. Peers trade at 10-13 times trailing EBITDA and Blackstone recently purchased Legoland parks for 10.6 times EBITDA. Applying an 11 multiple to our 2005 adjusted EBITDA estimate of $298 million leads to a value of $8, while applying the multiple to our 2006 estimate returns a value of $10. We believe the company's large debt and redeemable preferred stock burden, currently $2.6 billion, justifies a slight discount to peers. We are raising our 12-month target price to $8, 11.1 times our 2005 EBITDA estimate and 10.3 times our 2006 estimate.

TiVo (TIVO ): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

July-quarter breakeven, vs. 13 cents loss, is 5 cents and 4 cents better than S&P and Street estimates. But, amid questions with long-term model viability on DVR rivals cable and DBS, we think investors could be troubled by 12% drop in net adds, as TiVo and DIRECTV (DTV ) set to part ways. We see planned January-quarter marketing step-up increasing subscriber acquisition costs and delaying targeted July-quarter profitability. Among key challenges we see for the new CEO is inking more mass deployment deals, despite their notably sub-par economics (vs. stand-alone). Our price-to-sales-based target price is $6.50.

Intuit (INTU ): Reiterates 3 STARS (hold)

Analyst: Zaineb Bokhari

July-quarter seasonal operating loss of 8 cents, vs. 9 cents loss, is 2 cents narrower than our forecast. Revenues grew 17% on solid gains in QuickBooks. While Intuit believes QuickBooks to be superior (in current and expected future releases) to the competing entry upcoming from Microsoft (MSFT ), we see fiscal year 2006 QuickBooks growth slowing to the high single-digits from 15% reported in fiscal year 2005 (July). We believe Microsoft's entry will pressure operating margins in Intuit's small-business segment. Our fiscal year 2006 EPS estimate of $2.22 and 12-month target price of $47 are unchanged.

Johnson Controls (JCI ): Reiterates 4 STARS (buy)

Analyst: Efraim Levy, CFA

Johnson Controls agrees to acquire York International (YRK ), for $3.2 billion. The companies expect to close the transaction in December, subject to necessary approvals. We expect the proposed deal to accelerate revenue growth and generate cost efficiencies for Johnson Controls, which has an acquisition and integration track record that gives us confidence the purchase will be accretive in fiscal year 2006 (September). We are raising our fiscal year 2006 EPS estimate to $5.09 from $5.04, and expect synergies to accelerate after that. We are raising our target price to $70 from $66, based on combination of p-e and discounted cash flow analyses.

York International (YRK ): Reiterates 3 STARS (hold)

Analyst: James Corridore

York International agrees to be acquired by Johnson Controls at $56.50 per share in cash, about a 35% premium to yesterday's closing price for York. The agreement is subject to shareholder and regulatory approvals, and is expected to close in December. We think it's likely that the acquisition will be approved by all parties. Given that it is an all-cash deal, we expect the shares to trade close to the agreed-upon purchase price, pending closing, and are raising our 12-month target price to $57, from $42.

PETsMART (PETM ): Reiterates 5 STARS (strong buy)

Analyst: Michael Souers

July-quarter earnings per share of 24 cents, vs. 22 cents, is a penny better than our estimate and 2 cents ahead of the Street's. Total revenue growth of 11.6% includes comp-store growth of 4.2%. Despite our view of a solid quarter, the shares are trading sharply lower due to lowered guidance. PETsMART sees same-store-sales growth of 2%-3% in the October quarter, and expects significant store pre-opening costs to modestly de-leverage selling, general, and administrative (SG&A) expenses. While we think PETsMART is being overly conservative, we are lowering our fiscal year 2006 (January) and fiscal year 2007 EPS estimates to $1.25 and $1.52, respectively, from $1.30 and $1.56. Our target price falls by $2 to $35.

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