S&P Keeps Buy on Time Warner

Plus: Analysts upgrade Factset and Holly Energy Partners; and start covearge of medical device outfit Greatbatch

Time Warner (TWX ): Reiterates 4 STARS (buy)

Analyst: Tuna Amobi, CPA, CFA

Google (GOOG ): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

An unconfirmed WSJ online report says the company's AOL unit is close to a new advertising alliance with Microsoft's (MSFT ;5 STARS, strong buy) MSN unit, in a bid to compete with Google (GOOG ; 3 STARS, hold). While AOL now gets $300 million per year in search revenue from Google, we think the news seems consistent with plan to unlock potentially large ad upside with unique visitors. A MSN pact could make unnecessary the contemplated sale of AOL stake to any of various Internet and cable parties, which could provide investors in looming 2006 proxy battle with further ammunition. We reiterate our positive view of Time Warner management.

As for Google, if there were an agreement, we think AOL would drop Google as its primary Internet-search provider. AOL provided 10% of Google's year-to-date revenues through September, making it Google's biggest customer. WSJ.com reports the current AOL/Google relationship is due to expire next year. We think an AOL/Microsoft alliance could notably change the competitive landscape in Internet search and adversely impact Google.

Moody's Corp. (MCO ): Reiterates 2 STARS (sell)

Analyst: J. Peters, CFA

At a Dec. 6 media conference, Moody's said it sees opportunities to grow through rating new products, international expansion and deeper penetration of Europe. However, we think Moody's overall revenue growth rate will decelerate from the strong pace of recent years due to a higher U.S. interest rate environment. We believe its operating margin is likely to peak near its current level of about 55%, as the company invests in its business. Trading at about 30 times our 2006 EPS estimate and at a p-e-to-growth ratio of 2.2 times, we believe the shares are overvalued. Our 12-month target price stays at $48.

Greatbatch (GB ): Starts at 4 STARS (buy)

Analyst: Cameron Lavey

Greatbatch manufactures batteries, capacitors, feedthroughs, enclosures, and other components used in implantable medical devices and other applications. We think the increasing use of implantable devices, including defibrillators and pacemakers, will drive demand for Greatbatch's products. We forecast revenue growth of 5% in 2006, and we expect margins to widen on product mix shifts and lower Selling, General and Administrative Expenses. We estimate earnings per share of $1.07 in 2005, and see $1.07 earnings per share after 8 cents option expense in 2006. Our 12-month target price of $33 assumes Greatbatch will trade at 31 times our 2006 earnings per share estimate, in line with peers.

LP Units Of Holly Energy Partners (HEP ): Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Royal Shepard

Our upgrade is based on valuation, as Holly Energy Partners's units have declined 8% in price since mid-November, when its largest customer Holly Corp. announced a temporary production cut during a repair at its Navajo refinery. The LP confirms that the facility is back on line and we expect only a minor impact on fourth quarter results. We have lowered our 2005 earnings per unit estimate by 2 cents to $1.72, but are keeping 2006's at $2.00. Our 12-month target price is unchanged at $39.

Factset Research Systems (FDS ): Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Zaineb Bokhari

Ahead of November quarter results to be reported on 12/20, we forecast 20% revenue growth on acquisitions and low teens organic growth, and see earnings per share of 35 cents vs. 30 cents. We expect the client count to rise about 14% from a year ago while passwords rise about 15%. We think Factset Research Systems enjoys an entrenched position, with high barriers to entry, and we expect it to benefit from improving conditions for its buy-side and sell-side clients. We are adjusting our fiscal year 2006 (ending August) earnings per share estimate to $1.45 to include 14 cents projected option expense, and see $1.66 in fiscal year 2007. We are raising our target price by $7 to $46.

Allied Irish Banks (AIB ) : Reiterates 3 STARS (hold)

Analyst: Richard Tortoriello

Allied Irish Banks sees 2005 earnings per American Depositary Shares in euros coming in at the high end of guidance due to strong expected loan and deposit growth in its core markets, as well as strong capital markets results. We are maintaining our 2005 earnings per ADS estimate of $3.45, and our 2006 estimate of $3.67. We are encouraged by continued signs of strong results in the Republic of Ireland and, especially, in the UK, where we had been concerned by incipient signs of economic weakness. But with ADS trading at 12 times our 2006 earnings estimate, above peer-average, we view Allied Irish Banks as fairly valued.

Maxim Integrated Products (MXIM ) : Maintains 3 STARS (hold)

Analyst: Thomas Smith, CFA

Maxim Integrated Products guides for December quarter revenue up 5% from the September quarter, a rise from prior 4% guidance. This fits the pattern of upbeat reports we have been hearing from around the semiconductor industry. We think 11/13 authorization by Maxim Integrated Products's board to buy back up to 13.5 million more shares will also aid per-share results. As we shift to inclusion of 30 cents annual expenses for stock-based compensation in our operating estimates, we are lowering our fiscal year 2006 (ending June) earnings per share estimate to $1.38 from $1.65, and fiscal year 2007's to $1.65 from $1.90. However, we are raising our 12-month target price by $1 to $48.

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