S&P Downgrades TiVo to Sell
TiVo (TIVO ): Downgrades to 2 STARS (sell) from 3 STARS (hold)
Analyst: Tuna Amobi, CPA, CFA
Tivo shares slipped materially in second half 2005 and we see no 2006 catalyst as its pact with DirecTV (DTV ) fades and branded DVRs face competition from cable and DBS generics. Also, as EchoStar (DISH ) patent litigation moves to a first-quarter 2006 trial, TiVo could see new hurdles with potential network challenges over moves to differentiate with new portability features. Despite the planned 2006 TV ad search feature and Comcast (CMCSA ) mass rollout deal, the ad business could take years to scale. Our target price drops $1.50 to $4.50 on revised relative price/sales.
Affymetrix (AFFX ): Downgrades to to 2 STARS (sell) from 3 STARS (hold)
Analyst: Jeffrey Loo, CFA
Our downgrade is based on valuation following today's sharp rise in the share price. We continue to view Affymetrix as the leader and innovator in genomic tools, and believe the company's growth potential warrants a premium valuation. But we believe the premium is a bit rich now, at about 43 times our 2006 EPS estimate of $1.10 and with a p-e-to-growth ratio of 1.75. In addition, we have revised our model and believe that low production yield experienced in the third quarter for the company's 500K mapping array will continue to negatively impact results in the fourth quarter. Our 12-month target price stays at $45.
Visteon (VC ): Upgrades to 3 STARS (hold) from 2 STARS (sell)
Analyst: Efraim Levy, CFA
The shares are lower today following news that Visteon will be removed from the S&P 500 index (by an entity that operates separately from S&P Equity Research). We believe the selling pressure will be temporary, reflecting adjustments of holdings of index-based mutual funds and not, in our view, changes in Visteon's operating fundamentals. While we view the company's operating environment as challenging, and consider earnings visibility to be limited, we are maintaining our 12-month target price of $7.50, derived from 0.08 times our 2006 sales estimate. We expect Visteon's share price to be volatile.
Celgene (CELG ): Upgrades to 4 STARS (buy) from 3 STARS (hold)
Analyst: Frank DiLorenzo, CFA
The FDA okays Revlimid to treat patients with transfusion-dependent anemia from low- or intermediate-1-risk myelodysplastic syndromes associated with deletion 5q abnormality. We expect FDA approval in multiple myeloma by mid-2006, and we project Revlimid sales of $173 million for 2006. After option expense, we still see 2006 earnings per share at 79 cents, but are raising 2007's to $1.54 from $1.14. Based on our net par value analysis, which assumes approval of Revlimid in multiple myeloma and peak U.S. Thalomid/Revlimid sales of $1.9 billion by 2012, we are raising our 12-month target price to $71 from $67.
ExpressJet Holdings (XJT ): Downgrades to 2 STARS (sell) from 3 STARS (hold)
Analyst: James Corridore
Continental (CAL ) is removing 69 of 274 regional jets from ExpressJet service, starting January 2007. It cites ExpressJet's "above current market" rates and an inability to reach agreement with ExpressJet in negotiations. Continental intends to open negotiations with other regional airlines for this capacity. We think further capacity cuts for ExpressJet are possible, and see future capacity adds from Continental as unlikely. ExpressJet is also likely to face rate reductions on its remaining capacity. We are cutting our 12-month target price to $7, from $10, since we expect EPS to decline in both 2006 and 2007.
Linens'N Things (LIN ): Reiterates 3 STARS (hold)
Analyst: Michael Souers
Linens'N Things sets a special shareholders meeting for Jan. 30 to vote on its proposed acquisition at $28 per share cash by a company formed and controlled by Apollo Management L.P. Linens'N Things says it is on track to meet the contingencies for the transaction, which are to achieve no worse than a same-store-sales decline of 6% in the fourth quarter, and EBITDA of no less than $140 million in 2005. We believe Linens'N Things was highly promotional these past few months in order to attain desired sales, and our doubts regarding the likelihood of the deal have been reduced to a large degree.
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