S&P Reiterates Hold Opinion on Apple

Also: Teva gets boosted to strong buy, and analyst comments on BellSouth, Harley-Davidson, and others

Apple Computer (AAPL ) : Reiterates 3 STARS (hold)

Analyst: Megan Graham-Hackett

September quarter earnings per share of 38 cents before tax items, vs. 14 cents, exceeds our 34 cents estimate on better component pricing than we had modeled, and higher non-operating income. Revenue rose 57% to $3.68 billion, a bit above our $3.6 billion forecast, aided by strong laptop sales; iPod and desktops were below our model. Apple sees December quarter revenue up 38% from a year ago, a steep deceleration, which has been a concern to us. However, we are upping our fiscal year 2006 (ending September) estimate by 27 cents to $1.75, mostly on higher non-operating income. At well-above-peers 3.3 times price/sales, with $10 per share in cash, we would hold Apple.

Endesa ADRs (ELE ): Reiterates 4 STARS (buy)

Analyst: D. Wilson

Endesa launched a defense against Gas Natural's unsolicited bid by presenting its own 5-year plan for creating value. Included in the plan is target EBITDA growth of 10.7%, which we think may be too high given our view of the demand and pricing environment. Also included is a 12% hike in annual dividends, which we see as achievable. We are raising our sales growth forecast to 7% from 3% for 2006 and 2007. Our target price rises by $1 to $28, based on a blend of relative value metrics and our discounted cash-flow model, which assumes a 9.2% cost of equity and 2% terminal growth rate.

Teva Pharmaceutical (TEVA ): Upgrades to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Phillip Seligman

The FTC requested more info from Teva and IVAX Corp. (IVX ) on Teva's proposed acquisition of IVAX. We believe the FTC is interested in product overlaps, but we expect few divestitures to be required, if any, and none of major products. We see the deal moving ahead, with Teva and IVAX holders slated to vote Oct. 27. We see the deal, if approved by all parties, closing in late 2005 or early 2006. On our view of improved prospects, assuming the deal closes, we are upping our 2006 p-e estimate to 22 times from 20 times and our 12-month target price by $4 to $42.

BellSouth (BLS ) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Todd Rosenbluth

BellSouth shares are down 6% in October and fell below our 12-month target price of $25. We remain concerned that third quarter results, to be released Oct. 25, will be hurt by reduced access lines and higher expenses related to the hurricanes and cable competition. Our third quarter earnings per share estimate remains at a below-Street 41 cents, after Cingular integration expenses of 2 cents. Over the longer term, we see challenges for the company against larger Bell competitors. However, with the shares trading at a p-e of 14 times, in line with peers, and with a 4.7% dividend yield, we would hold BellSouth.

Cincinnati Bell (CBB ): Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Todd Rosenbluth

We believe Cincinnati Bell's access line count for the third quarter will be less stable than its smaller telecom peers, negatively impacted by cable competition following the one-year anniversary of the launch of telephony services by Time Warner (TWX ) in Cincinnati. In addition, we see continued wireless substitution pressuring local operations. As such, we are lowering our third quarter earnings per share estimate to 4 cents from 5 cents. We are also reducing our 12-month target price to $4 from $4.50, as we believe Cincinnati Bell should trade at an enterprise value/earnings before interest taxes depreciation and amortization (EBITDA) multiple of 6.5 times, a discount to peers.

Harley-Davidson (HDI ): Reiterates 3 STARS (hold)

Analyst: Thomas Graves, CFA

Harley-Davidson's third quarter EPS of 96 cents, vs. 77 cents one year earlier, tops our estimate by 4 cents. We are raising our full 2005 EPS estimate to $3.39 from $3.37, and 2006's to $3.79 from $3.75. However, we are lowering our 2005 projection of free cash flow, and boosting the longer-term risk premium for the stock in our discounted cash-flow model. Partly on caution about the longer-term sales outlook, we believe the stock should have a p-e discount to the S&P 500 (the discount is now about 11%, based on 2006 EPS estimates). Based on a combination of DCF and relative p-e analysis, we are lowering our 12-month target price to $54, from $60.

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