S&P: Still Buy Time Warner

Plus: analysts comment on recent news from FPL, Constellation Energy, Pfizer, Pepsi, and Cablevision

FPL Group (FPL ) : Maintains 5 STARS (strong buy)

Analyst: Justin McCann and Yogeesh Wagle

FPL agreed to merge with Constellation Energy Group (CEG ). The all-stock deal, valued at about $11 billion, is expected to close by 2006 year-end, pending receipt of regulatory approvals. We view the planned merger favorably; we believe it would create a stronger platform for growth in unregulated operations, including a more balanced fuel mix, geographical diversity and lower operating costs. With roughly half of the combined company's earnings expected to be derived from regulated operations, we do not expect any significant change in dividend payout or growth.

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

Analyst: Tuna Amobi, CPA and CFA

Several unconfirmed reports including those from the Associated Press, say Google (GOOG ) may be close to taking a 5% stake in Time Warner (TWX )'s AOL for $1 billion. The broader advertising partnership, with a new 5-year term extending the current pact to 2011, should give AOL more flexibility to sell Google search ads, promote AOL's web sites and include AOL's online videos in search results. But we think the implied $20 billion AOL value reflects a relatively modest 10 times projected 2005 earnings before interest, taxes, depreciation and amortization, or EBITDA. While further details are unclear, we would favor any deal that doesn't unbundle AOL's declining access business.

Pfizer (PFE ): Reiterates 3 STARS (hold)

Analyst: Arthur Saftlas

Pfizer led the drug group higher following the Lipitor patent victory. The U.S. court ruling insures patent protection on this $12 billion cholesterol drug to 2011. However, we still see Lipitor growth challenged by increasing competition from Vytorin, and generic Zocor and Pravachol in 2006. We also think prospects hinge heavily on Lipitor-torcetrapib, a planned successor to Lipitor that still faces many clinical and regulatory hurdles. We are maintaining our $26 12-month target price. We also assume maintenance of the recently hiked 96 cents dividend.

Pepsi Bottling Group (PBG ) : Maintains 3 STARS (hold)

Analyst: Richard Joy

Pepsi Bottling Group says it is on track for 3% worldwide volume growth and 3% net revenue-per-case gains for 2005, which is in line with our forecasts. We are keeping our 2005 earnings per share estimate at $1.85. For 2006, Pepsi Bottling Group expects another balanced year, with volume up 3% and net revenue-per-case up 2% to 3%, which we view as reasonable. We expect cost pressures to moderate in the second half of 2006. To now account for the inclusion of option expense, our 2006 EPS estimate declines by 18 cents to $1.84. We believe Pepsi Bottling Group shares are worth holding, given long-term growth potential. Our 12-month target price is $32.

Cablevision Systems (CVC ) : Reiterates 3 STARS (hold)

Analyst: Tuna Amobi, CPA and CFA

Shares are down over 4% after Cablevision Systems filed an 8-K canceling plan for a $3 billion special dividend, citing debt covenant violations. The plug is thus pulled on a $1 billion Sr. notes offering to partly fund the payout, plus some funds from a refinanced $4.5 billion credit facility. We aren't entirely surprised by this news, as the proposed dividend could have significantly constrained financial flexibility and corporate credit is still under negative watch from S&P Credit Market Services (an entity operating separately from S&P Equity Research). Our target price falls by $2 to $26.

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