S&P Keeps Hold on Electronics For Imaging

Plus: Analyst opinions on F5 Networks, Hibernia, Capital One, and others

Electronics For Imaging (EFII ): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

Citing strong demand, Electronics For Imaging raised its third quarter guidance. The digital imaging company now sees third quarter revenues of $137 million to $139 million, about $10 million above our model, and pro forma earnings per share of between 30 cents and 32 cents, about 10 cents above our original estimate. We believe the third quarter was also aided by contributions from the VUTEk acquisition, completed earlier this year, and expense controls. We are raising our 2005 earnings per share estimate to 80 cents from 11 cents. But the company's gross margins have been under pressure and we will be watching this trend when the third quarter is reported in mid-October. With shares trading at a price-to-sales of 3 times, we view Electronics For Imaging as fairly valued vs. its peers.

F5 Networks (FFIV ): Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

F5 Networks agreed to acquire Swan Labs Corp. for $43 million in cash. We see the potential deal as a plus, as F5 Networks has the financial wherewithal for a deal of this size, in our opinion, with $5.40 per share of cash to spend. Also, we believe Swan Labs' technology could benefit F5 Network's product line and enable further product differentiation from the company's peers. With F5 Networks trading near its peers on a price-to-sales basis at 6.5 times, we continue to view the shares as fairly valued, given our view of the company's relatively high gross margin structure and solid balance sheet.

Hibernia (HIB ): Reiterates 3 STARS (hold)

Capital One Financial (COF ): Reiterates 5 STARS (strong buy)

Analysts: Jason Seo, CFA and Mark Hebeka, CFA.

Hibernia and Capital One Financial have renegotiated the pending acquisition of New Orleans-based Hibernia, after a preliminary assessment of damage caused by Hurricane Katrina. The new price is a reduction of about 9% from the original terms. The transaction is now expected to close in the third quarter. We continue to view the acquisition as a long-term positive and view the new purchase price as fair. While we believe about 20 Hibernia branches might be significantly impaired, we look for long-term opportunities as New Orleans begins to rebuild. We are maintaining our 12-month target price of $95 on Capital One and are cutting our 12-month target price on Hibernia by $5 to $31.

Delta Air Lines (DAL ): Reiterates 2 STARS (sell)

Analyst: James Corridore

Delta Air Lines plans to sell eleven 767-200 airplanes to ABX Air (ABXA ) and to shrink the mainline capacity at its Cincinnati-Northern Kentucky hub by about 26%. Delta is consolidating that hub into fewer flight "banks," a departure from recent industry trends toward depeaking hubs to increase utilization. Delta also announced that it will increase international flying on its airlines. We think that any financial benefits from these transactions are not likely to materially improve the company's financial condition. We still see a bankruptcy filing before October 17 as likely. Our 12-month target price remains $1.

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