S&P Raises Google Target Price

But the shares keep their hold ranking amid notable risk. Plus: Comments on Boston Scientific's Guidant bid, and ranking changes on Level 3 and others

Google (GOOG ): Maintains 3 STARS (hold)

Analyst: Scott Kessler

We are lowering our 2006 EPS estimate to $7.62 from $8.09, after accounting for projected stock options expense. But using 2006 forecasts and a lower weighted-average cost of capital projection leads us to raise our target price to $428 from $364. We estimate Google's 2006 p-e as comparable to peers, and its p-e-to-growth multiple at 28% below peers, which we have factored into our target price. We also think the stock has notable risk, given recent significant appreciation, the company's lack of revenue diversification beyond online search, and intensifying competition we see in the segment.

Level 3 Communications (LVLT ): Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Todd Rosenbluth

In the past two weeks, Level 3 Communications shares have declined 19%, approaching our 12-month target price of $3.00. The price dropoff came on the heels of a 52-week high reached in mid-November and the company's planned purchase of WilTel Communications, announced on October 31, pending approvals. We think the deal reduces some liquidity risk we see for Level 3 Communications. But given price considerations and the fact that the combined prospects appear to us largely dependent on still immature VoIP products and Level 3 Communications's, we would not add to postions.

Quanex (NX ): Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Leo Larkin

Our downgrade is based on our less optimistic outlook for Quanex's fiscal year 2006 (ending October) earnings per share. The company reported $1.58 October quarter earnings per share before special gains vs. 78 cents earnings per share on 13% higher sales, beating our $1.25 estimate. But based on our expectation for reduced demand from Quanex's two key markets and our view of the company's January quarter guidance, we are cutting our fiscal year 2006 earnings per share estimate to $3.95 from $5.25. We still have a favorable long-term view of Quanex based on its market share gains and much stronger finances than in the past. But due to our lower estimate, our 12-month target price declines to $50 from $64.

Intersections (INTX ): Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Zaineb Bokhari

Intersections shares are trading modestly below our 12-month target price of $9. We do not consider the company's current services to be differentiated from peers, and we continue to see it as vulnerable to future competition and pricing pressure. However, we believe the shares have appropriately priced in these risks at current levels. We forecast earnings per share of 54 cents and 49 cents in 2005 and 2006, respectively, including projected options expense of 16 cents per share in each year. We also see Intersections as a potential target for acquisition.

AutoNation (AN ): Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Efraim Levy, CFA

Our downgrade is based on price. We are maintaining our earnings per share estimates for 2005 at $1.52 and for 2006 at $1.60. We see light vehicle sales falling about 2% to 16.7 million in 2006. In our opinion, AutoNation is overweighted with domestic-branded dealerships and we expect domestic brands to continue to lose market share. Our 12-month target price is $20. Above our target, we would sell AutoNation.

Quiksilver (ZQK ): Ups to 5 STARS (strong buy) from 3 STARS (hold)

Analyst: Marie Driscoll, CFA

We regard fiscal year 2006 (ending October) as transitional for Quiksilver, as the company positions itself for growth and we see it returning to 15%+ earnings growth in fiscal year 2007. Our fiscal year 2006 earnings per share estimate falls to 90 cents from 99 cents (compared to our 87 cents fiscal year 2005 estimate) to reflect accelerated integration costs of the recently acquired Rossignol. We see lifestyle positioning providing incremental market share and the opportunity for brand extensions at Rossignol, and think reorganization should improve margins by fiscal year 2007. Our 12-month target price of $17 assumes Quiksilver will trade at 15.5 times our fiscal year 2007 earnings per share estimate of $1.10.

Boston Scientific (BSX ): Maintains 3 STARS (hold)

Analyst: Robert Gold

Boston Scientific offered to buy Guidant (GDT ) in a deal in which Guidant holders get a combination of cash and stock worth $72 per share. Assuming no further deterioration in Boston Scientific's share price, and 6% financing, we see about 12% to 13% 2006 earnings per share dilution, and the dilution persisting through 2007. We don't see Johnson & Johnson (JNJ ) raising its $63 offer for Guidant but we think Guidant holders face a difficult choice, given Johnson and Johnson's broad competitive strengths and strong stock currency.

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