S&P Cuts Dow Chemical, Ups XM Satellite
XM Satellite Radio : Ups to 3 STARS (hold) from 2 STARS (sell)
Analyst: Tuna Amobi, CPA and CFA
We believe second quarter results were lackluster, and note sharply reduced management guidance. However, we think worst is over and, with shares down sharply year-to-date, we view them as fairly valued. XM Satellite Radio recently passed 7 million subscribers, and plans to revisit its subscriber growth targets after its third quarter report. Still, we see overhang on product shipment delays during the FCC emission probe, plus other unrelated legal and regulatory matters. We are also wary of more retail market-share losses to rival Sirius (SIRI). Our target price remains $12.
Stanley Works (SWK) : Ups to 3 STARS (hold) from 2 STARS (sell)
Analyst: Amy Glynn, CFA
Second quarter earnings per share (EPS) of 90 cents vs. 77 cents exceeds our 83 cents estimate, on organic sales growth of 3%. Sales in the Consumer Products business were aided by the successful launch of the FatMax Xtreme hand tools product line, which we think will continue to do well. Like peers, Stanley Works is facing commodity cost pressures, but we think productivity initiatives and pricing should partly offset. We raise our 2006 EPS estimate to $3.55 from $3.45 and see 2007's EPS estimate at $4.15. We also raise our target price to $50 from $44.
Comcast(CMCSK) : Ups Cl. A Special Shares to 4 STARS (buy) from 3 STARS (hold)
Analyst: Tuna Amobi, CPA and CFA
Our action is due to Comcast's 2nd consecutive quarter of solid gains in key metrics, and its sharp gain in 2006 revenue-generating unit growth. Comcast sees a close on Adelphia/Time Warner (TWX) deals accretive to 2006 operating cash, and likely ramping up free cash starting in 2007. We think Comcast's second quarter call suggested that overall VoIP phone economics are turning out even better than already bullish expectations. With what we see as sizable potential scale economies, our target price rises by $8 to $40.
Dow Chemical (DOW) : Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Richard O'Reilly, CFA
Second quarter EPS of $1.05 vs. $1.20 fell short of our $1.50 estimate and the Street's $1.13. Sales rose 9% on higher prices and volume growth outside the U.S. But results were limited by higher feedstock costs, price erosion early in the quarter for plastics, and lower U.S. sales of agricultural chemicals. However, we believe there is some momentum in resin prices now. We are cutting our 2006 EPS to $4.50 from $5.25 and 2007's to $5.00 from $6.00, and are reducing our 12-month target price to $40 from $51.
Murphy Oil (MUR) : Ups to 3 STARS (hold) from 2 STARS (sell)
Analyst: Charles LaPorta
Murphy Oil posted second quarter earnings per share (EPS) of $1.13 vs. $1.28, above our 90 cents estimate on better realized oil prices. The Meraux refinery in Louisiana is ramping back up and should be processing 100,000 barrels per day in August. While third quarter upstream production is expected to be lower on various field shutdowns, the massive Malaysian production is still scheduled to ramp up in the second half of 2007 vs. our expectation of a push out. We are lowering our 2006 EPS estimate 15 cents to $3.35, but raising 2007's $1.50 to $6.00. We are also increasing our target price $15 to $55.
MEMC Electronic Materials (WFR) : Ups to 5 STARS (strong buy) from 4 STARS (buy)
Analyst: David Kaplan
Second quarter Generally Accepted Accounting Principles EPS of 36 cents vs. 26 cents fell short of our 37 cents estimate. But revenue and gross margin beat our expectations, the gross margin significantly, driven by higher prices in the polysilicon market. Net results were lower, largely on higher-than-expected tax rate. We are encouraged by the company's expectations of completing overdue SEC filings by 8/10/06, and that revenue recognition issues were of limited materiality. We are raising our 2006 EPS estimate by 24 cents to $1.73, and our 2007 EPS estimate by 70 cents to $2.69. Our 12-month target price remains $47.
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