S&P Cuts Guidant, Ups Ryanair
Yahoo (YHOO ) : Reiterates 4 STARS (buy)
Analyst: Scott Kessler
Yahoo announced plans to purchase the 30% stake in Yahoo! Europe and 67% share of Yahoo! Korea it does not already own, in transactions valued at $500 million. We expect these deals to close in the fourth quarter, pending necessary approvals, and think they would contribute to Yahoo's international efforts and operating clarity. Yahoo also announced a partnership with TiVo (TIVO ), allowing users to access online TiVo DVR scheduling functions through Yahoo. We think this agreement is constructive for Yahoo, and could lead to an expanded relationship for more online video applications.
Guidant (GDT ) : Cuts to 1 STAR (strong sell) from 3 STARS (hold)
Analyst: Robert Gold
Third quarter operating earnings per share of 32 cents vs. 63 cents is far under our 56 cents estimate, as the damage from pacemaker and defibrillator recalls was worse than expected. Defibrillator sales fell 26% in the third quarter and pacing fell 15%; we see more weakness in the fourth quarter. Separately, Guidant launched a lawsuit to force Johnson & Johnson (JNJ ) to complete the acquisition of Guidant on existing terms; it also says that the Securities and Exchange Commission is investigating product disclosures and trading activity. We think the Johnson & Johnson deal will break regardless of the $700 million breakup fee. Our target price falls by $21 to $48 on a stand-alone value relative to peers.
Ryanair (RYAAY ) : Ups to 4 STARS (buy) from 3 STARS (hold)
Analyst: Habib Nasrallah
Ryanair reported September quarter earnings per American Depositary Share of $1.83 vs. $1.56, better than we expected. Revenues were 1% ahead of our projection, while net profit beat our forecast by 8% on lower costs than we expected. Ryanair expects yield up 1% in the third quarter and down 5% to 10% in the fourth quarter. We think it will do better than that, given its track record of beating its own forecasts for the past seven quarters. We are keeping our 12-month target price at $55, based on our discounted cash flow analysis. With the recent retreat in share price, the appreciation implied by our target price has led us to raise our opinion to buy.
CNOOC Ltd. (GDT ) : Upgrades to 4 STARS (buy) from 3 STARS (hold)
Analyst: L. Tan
The ADRs' 9% decline since the beginning of September leaves more than 20% upside to our 12-month target price of $77, even given potential risks for crude prices to fall and possible higher costs. Average crude selling price in the third quarter, at $52.40 per barrel, was in line with our full year assumed average of $50.33. Minor changes to our profit forecast are having minimal impact on our estimated valuation of CNOOC. Our target price values the shares at 10 times our 2005 EPS estimate of $7.70, below sector average of 13 times, and 10% below our estimated replacement value assuming a long-term crude price of $39.50.
Credit Suisse Group (CSR ) : Maintains 4 STARS (buy)
Analyst: D. Chambers
Credit Suisse posted third quarter net profit of CHF1,918 million vs. CHF1,351 million one year earlier, above our CHF1,690 million estimate. Results were aided by fees on new business inflows in private banking and focus on key areas of strength in institutional securities. We are encouraged by strong performance in all divisions and believe recent results reinforce the credibility of management's strategy. Accounting for forex, we are raising our 2005 earnings per ADS estimate by 2 cents to $3.99, but cutting 2006's by apenny to $4.50. Our 12-month target price rises by $4 to $52, 11.6 times our 2006 earnings estimate, a premium to peers.