S&P Downgrades Yahoo, Ups Hormel

Plus: Analysts cut Aon recommendation, upgrade Vail Resorts

Yahoo (YHOO ): Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Scott Kessler

We are raising our 12-month target to $45 from $42. However, after a rise in Yahoo shares by some 33% since Sept. 21, we now see the prices potential for further increases as more limited. Moreover, we think Yahoo's notable exposure to stock options could be construed unfavorably as 2006 approaches; the company will have to begin expensing them next year. To reflect anticipated stock-option expenses, we are lowering our 2006 earnings per share estimate to 66 cents from 76 cents. Even so, we see Yahoo as a prime beneficiary of online advertising growth.

Aon (AOC ) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Frank Braden

With shares up nearly 25% since Hurricane Katrina struck in August, and up more than 50% year to date, Aon stock is approaching our 12-month target price of $37, and we see the shares as fairly valued. Although we are encouraged by the company's restructuring and see improving margins, Aon still has hurdles to overcome, in our view, including weak consulting results and a difficult pricing environment. Our target price remains $37, or 15.7 times our 2006 earnings per share estimate of $2.36, including projected stock option expense. This is a premium to Aon's historical average.

Hormel Foods (HRL ) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Joseph Agnese

October quarter earnings per share of 59 cents vs. 50 cents is 2 cents above our estimate. Results benefited from acquisitions, lower raw material costs, strenthening international demand, and new specialty foods product offerings. We are adjusting our view of fiscal year 2006 (ending October) earnings per share to include 4 cents in stock options expense, leading to a new estimate of $1.95, at the high end of Hormel's $1.86 to $1.96 guidance. We see results benefiting from lower raw material prices for pork and feed, and growth in Hormel's value-added product portfolio. Our 12-month target price rises $2 to $36.

Vail Resorts (MTN ): Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: William Mack, CFA

We think the implied valuation on the pending sale of Mammoth Mountain by competitor Intrawest suggests a much higher value for Vail's own mountain segment, its primary cash generator. In addition, our fiscal year 2006 (ending July) earnings per share estimate increases to $1.10 from $1.05, as we see early signs of another strong ski season, and our earnings before interest taxes depreciation and amortization, or EBITDA, estimate for the coming year rises by $5 million to $200 million. We are increasing our 12-month target price to $40 from $27, as we now apply a 9 times multiple, up from 7 times, in line with past averages, to this slightly higher EBITDA estimate.

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