S&P Ups Companhia Vale do Rio to Buy

Analyst Leo Larkin says the Brazilian metals giant is poised to capitalize on rising Chinese demand for iron ore. Plus: Opinions on EMC, Shaw Group, and others

From Standard & Poor's Equity Research

Companhia Vale do Rio Doce (RIO): Ups ADRs to 4 STARS (buy) from 3 STARS (hold)

Analyst: Leo Larkin

The increase is based on valuation. Wecontinue to project 2006 earnings per ADS of $2.85 on higher prices for iron ore and increased contributions from base metals such as aluminum and copper. With its ADRs currently selling at 8.2 times that estimate and yielding 2.4%, we believe Rio is attractive. On our unchanged target price of $28, Rio's projected p-e would be toward the lower end of itshistorical range. In our view, the company is well positioned to capitalize on rising Chinese demand for iron ore and a secular rise inbase metals demand.

Emmis Communications (EMMS) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Loran Braverman, CFA

May quarter loss per share of 7 cents vs. year-ago earnings per share (EPS) of 4 cents is wider than our 2 cents loss estimate, hurt by a loss on debt prepayment. We view the quality of Emmis's earnings as low, with sales we see as weak and a 2.7% tax rate. We are reducing our radio division revenue and earnings forecasts for fiscal year 2007 (ending Feb.), leading to a 9 cents drop in our EPS estimate to 14 cents. However, our 12-month target price remains $16.

Shaw Group (SGR) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Stewart Scharf

The shares are down 15% this morning as Shaw Group posts May- quarter EPS of 16 cents before 37 cents charge, vs. year-ago loss of 31 cents. This is well below our estimate, reflecting canceled FEMA orders for hurricane-relief work. Also, accounting errors in the February quarter casts a cloud over internal controls, in our view. Even so, backlog at $8.1 billion is up 21% year to date. Operating cash flow may turn positive in the August quarter, but is a negative $239 million for the 9 months of fiscal year 2006 (ending August). We are reducing our fiscal year 2006 EPS estimate by 40 cents to $1.10, and fiscal year 2007's by 30 cents to $1.40. We are lowering our target price by $14 to $23.

EMC (EMC) : Reiterates 5 STARS (strong buy)

Analyst: Richard Stice, CFA

EMC lowers second quarter revenue and GAAP EPS targets to $2.575 billion and 12 cents, from $2.66 billion and 13 cents. It attributes the modest shortfall to a change in inventory mix. We are disappointed by the news, but think demand for EMC's newer product lines and higher backlog than anticipated should result in a stronger-than-expected second half. Moreover, we are encouraged with what we view as an aggressive share buyback program by EMC, with about $1 billion spent in the second quarter. As a result, we continue to strongly advise purchase of its shares and are maintaining our target price at $18.

Before it's here, it's on the Bloomberg Terminal.