S&P Keeps Strong Buy on TiVo

Analyst Tuna Amobi says the court injunction against EchoStar is a key patent milestone for TiVo. Plus: analysts comment on Microsoft, Ford, and more

From Standard & Poor's Equity Research

TiVo (TIVO): Maintains 5 STARS (strong buy)

Analyst: Tuna Amobi, CPA and CFA

The shares are up sharply this morning as a court issues a permanent injunction against further sales by EchoStar (DISH) of certain DVRs, recently found by a trial court to have infringed TiVo's 'time warp' patent. We see swift EchoStar appeal, and think final disposition could take years. Still, we see this key patent milestone reinforcing TiVo's valuable intellectual property rights. We note the court also affirmed an earlier $74 million damages award to TiVo, adding another $16 million in supplemental damages and prejudgement interest. Our 12-month target price stays $12.

Microsoft (MSFT) : Reiterates 5 STARS (strong buy)

Analyst: Scott Kessler

Microsoft announces preliminary results of its Dutch auction self-tender, and expects to acquire 155 million shares at $24.75, for about $3.8 billion. Pricing was at the high end of the indicated range of $22.50 to $24.75, and the number of shares tendered was considerably lower than contemplated by the size of the offer. This suggests to us that Microsoft investors were unwilling to part with the shares below $24.75, underscoring our opinion that the stock is undervalued. Microsoft raises its buyback program by the amount remaining from the tender offer, to $36.2 billion from $20 billion.

Ford Motor (F) : Reiterates 3 STARS (hold)

Analyst: Efraim Levy, CFA

We are widening our 2006 loss per share estimate by $1.08 to $1.28 on a weaker production outlook. The mix shift from trucks to less-profitable cars and other vehicles should compound negative impact on margins. However, we think reduced production is more prudent than damaging brand equity with price cuts and incentives. It could also provide easier 2007 comparisons. We are raising our 12-month target price by $1.50 to $8 on peer-based price/sales, as production cuts could provide impetus for more aggressive restructuring.

Gap (GPS) : Reiterates 2 STARS (sell)

Analyst: Marie Driscoll, CFA

Steep discounts and declining store traffic resulted in July quarter EPS of 15 cents vs. 30 cents, slightly above our 13 cents estimate. We view Gap's casual product offering as commodity apparel, as opposed to contemporary fashion, and believe that despite valiant marketing attempts, its brands are not resonating with their target demographic. With July quarter gross margin contracting 440 basis points and a disappointing August, Gap reduces its fiscal year 2007 (ending Jan.) operating margin guidance to between 8.5% and 9% from 10.5%, and sees EPS of $1.08 to $1.12, cut from between $1.23 and $1.27. We are keeping our fiscal year 2006 (ending Jan.) estimate at $1.04.

Marvell Technology (MRVL) : Maintains 2 STARS (sell)

Analyst: Thomas Smith, CFA

Marvell Technology announces that July quarter revenue rose 47% year over year and 10% quarter over quarter, to $574 million, below our estimate for $582 million. While the growth rates are among the best in the semiconductor group, Marvell Technology's guidance for 1% quarter over quarter sales growth is unexceptional among peers and below our 6% estimate. We believe efforts to keep sales up by broadening market exposure will create vulnerability to weak spots, lower margins, and reduce valuation. Options investigation is apt to preclude timely 10-Q filing. We are lowering our fiscal year 2007 (ending Jan.) split-adjusted earnings per share (EPS) estimate to 67 cents from 73 cents and fiscal year 2008's to 80 cents from 95 cents.

Mills (MLS) : Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Robert McMillan

After recent decline, we think that these high-risk shares offer attractive potential. We continue to be disappointed that Mills has not yet released financial results for 2005 and recent quarters, and has indicated that its planned accounting charges will likely reduce earnings by a total of $210 million for 2003, 2004, and 2005; but we think there is significant value in its portfolio, as highlighted by the planned sale of its interest in three European malls for $981 million. We believe Mills can use asset sale proceeds to reduce debt and improve liquidity. Our 12-month target price remains $22.

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