S&P Downgrades BT Group to Hold

Plus: Analyst opinions on earnings from Texas Instruments, Pitney Bowes, AT&T, and more

From Standard & Poor's Equity Research

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

Analyst: Cristina Perea

We see a 2.6% rise in group revenues for the June quarter, year to year, helped by 5.1% revenue growth from BT Global and 2.8% from BT Wholesale. We continue to expect poor performance from BT Retail, with revenues declining about 3.8%. We believe competition continues to be keen in the broadband segment, BT's main area of growth, given an increase in the new product offerings of competitors. Our target price stays $45, based on our discounted cash flow model, which assumes a weighted-average cost of capital of 7.3%, reduced to 6.8% in the terminal year, and a terminal growth rate of 0%.

Randgold Resources (GOLD) : Starts at 3 STARS (hold)

Analyst: Leo Larkin

This mid-sized gold producer has two producing mines located in the nation of Mali. We view Randgold Resources as a vehicle for benefiting from a gold bull market. Despite erratic earnings, the company has managed to increase reserves. In our view, a rising gold price should lead to more consistent earnings and make future reserve growth possible. We estimate earnings per ADS of 80 cents in 2006. We are setting a 12-month target price of $22. On our target P/E of 27.5 times, Randgold Resources would sell at the midpoint of its historical range, a discount to its larger peers.

United Parcel Service (UPS): Reiterates 4 STARS (buy)

Analyst: Jim Corridore

UPS's second quarter EPS of 97 cents, vs. 88 cents one yera earlier, misses our $1.00 estimate. The company reduced guidance to the low end of its 11% to 16% EPS growth projection, citing fewer operating days and high fuel costs. We are cutting our 2006 and 2007 EPS estimates to $3.90 and $4.30 from $4.00 and $4.40. Our 12-month target price falls to $82 from $96. At 19 times our 2007 EPS estimate, this is at the low-end of UPS's historicalp-e range. Given strong cash generation, likely margin improvement and expected international growth, we expect the shares to maintain apremium to the S&P 500 even if the U.S. economy weakens.

Pitney Bowes (PBI) : Reiterates 4 STARS (buy)

Analyst: Richard Stice, CFA

Pitney Bowes posts second quarter operating earnings per share (EPS) of 64 cents vs. 59 cents, below our 70 cents estimate. Revenue rose 5%, modestly below our forecast, as the company was impacted by order delays; we expect this issue to dissipate during the second half. We are reducing our 2006 EPS estimate, after projected stock option expense, by 3 cents, to $2.84, and our 12-month target price by $1 to $49. However, we continue to view Pitney Bowes's shares as attractive, given the company's market position and recurring revenue base, and with its shares now at a discount their historical average.

Texas Instruments (TXN) : Reiterates 5 STARS (strong buy)

Analyst: Thomas Smith, CFA

Texas Instruments reports second quarter EPS from continuing operations of 47 cents vs. 35 cents, a penny below our estimate. Revenues rose 24% year over year and 11% quarter over quarter, aided by one-time sales tax refund and royalty settlement items. The tone of wireless markets is strong, in our view, and the book-to-bill ratio rose to 1.07. We believe the sale of the Sensors business will create a great deal of strategic flexibility. Long-term debt was paid off, while share buybacks continue. Cash rose by $2 billion in the second quarter. We are raising our 2006 EPS estimate by a penny to $1.81. Our 2007 estimate is unchanged at $2.25.

AT&T (T) : Reiterates 4 STARS (buy)

Analyst: Todd Rosenbluth

AT&T posts second quarter operating EPS of 58 cents vs. 43 cents, 8 cents ahead of our estimate before one-time items. Revenues were in line with our projection, with gains in DSL and growth in small business offsetting weakness in voice services. Majority-owned Cingular Wireless's results, previously released, were above our estimate. Wireline margins expanded further than we had expected on synergies and we are encouraged as AT&T raised its 2006 margin guidance above our estimate. We also view positively AT&T's plans to buy back $2 to $3 billion in shares in 2006. We will update after the morning call.

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