S&P Downgrades Yahoo, Cuts Target Price

Plus: Analysts upgrade CheckFree, comment on IBM's quarterly results, and more

From Standard & Poor's Equity Research

Yahoo (YHOO) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Scott Kessler

Shares are indicated to open lower Wednesday, as Yahoo posts earnings per share (EPS) of 11 cents (after option expense) vs. 13 cents (before options), 2 cents below our forecast. Revenues excluding traffic acquisition costs (TAC) were slightly below our forecast. We are maintaining our 2006 estimates of $4.7 billion in revenues (ex-TAC) and 54 cents in EPS. However, we believe there is less potential associated upside, due to the push-out of the deployment of Yahoo's new search technology to the fourth quarter from the third quarter. We are reducing our 12-month target price to $34 from $40.

CheckFree (CKFR) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Zaineb Bokhari

CheckFree shares are down about 20% from highs seen in late April. We believe CheckFree has successfully navigated through a recent contract expiration. Acquisitions (Aphelion and PhoneCharge) have added to revenues and broadened CheckFree's payment offerings. We see pricing in CheckFree's E-commerce segment remaining constrained in the near-term, but look for solid gains in subscribers and transaction volumes, aided by a recent agreement with Wachovia (WB). We estimate operating earnings per share (EPS) of $1.72 in fiscal year 2006 (ending June) and $1.85 in fiscal year 2007. Our 12-month target price stays $58.

Statoil (STO) : Cuts to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Christine Tiscareno

Our downgrade is based on valuation, given the recent appreciation in ADSs. Our target price remains $32 per ADS. Statoil is scheduled to report its second quarter results on Monday, July 31. We expect it to post earnings per ADS of 66 cents. Norwegian Continental Shelf production was down in the second quarter, but we believe strong oil prices will help protect Statoil's earnings from any production declines. With the upside of high oil prices being offset by higher operating costs, we are cutting our 2006 earnings per ADS estimate by 51 cents to $3.02 and 2007's by 83 cents to $2.72, but raising 2008's by 69 cents to $3.60.

TCF Financial (TCB) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Mark Hebeka, CFA

TCF Financial posts second quarter operating earnings per share (EPS) of 52 cents vs. 53 cents, above our 48 cents estimate. Strong earning asset growth exceeded our expectations while net interest margin remained fairly stable. While we are encouraged by the results and view banking fundamentals as solid, TCF Financial's current market price is near our 12-month target price of $30 and we continue to be cautious because of a challenging interest rate environment as well as competition we view as intense in most of the bank's markets. We are increasing our 2006 and 2007 EPS estimates to $1.98 and $2.15 from $1.95 and $2.14, respectively.

International Business Machines (IBM) : Reiterates 4 STARS (buy)

Analyst: Richard Stice, CFA

Second quarter EPS of $1.30 vs. $1.14 is two cents above our estimate. Revenue exceeded our projection and was boosted by strength in mainframes and microprocessors. We are encouraged by IBM's continued expansion into emerging economies, as Indian-based revenues rose 45%. Gross margin was 90 basis points above our projection, mostly on an improved business mix. We are raising our 2006 EPS estimate by a penny to $5.91. Given IBM's broad market reach, accelerating earnings momentum and ongoing share buybacks, we advise purchase of its shares. Our 12-month target price remains $93.

Brown & Brown (BRO) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Frank Braden

With shares down nearly 22% from their high in April, we view this as an attractive entry point. The company has a successful track record of growing revenue and improving operating margins, even through difficult pricing and regulatory environments. We believe Brown & Brown will reach its goal of $1 billion in total revenue in 2007. Ahead of its second quarter earnings release, expected 7/24, we continue to look for second quarter operating EPS of 30 cents versus 27 cents. Our 12-month target price remains $35, 28 times our 2006 EPS estimate of $1.24, in line with Brown & Brown's historical average and a premium to its peer group.

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