S&P Cuts Estimates, Target on Toll Brothers
Toll Brothers (TOL) : Maintains 3 STARS (hold)
Analyst: William Mack, CFA
Toll Brothers posts July quarter earnings per share (EPS) of $1.07 vs. $1.27, below our $1.15 estimate due to an unanticipated write-down of 9 cents (after-tax) for impaired land. The company's fiscal year 2007 (ending Oct.) guidance suggests to us continued weakness in new home demand. Thus, we are again reducing our fiscal year 2006 and fiscal year 2007 EPS estimates, to $4.55 and $3.75, from $4.60 and $4.15, respectively. Given what we believe is a relatively deep lack of earnings visibility, we are also reducing our 12-month target price to $28 from $30.
Sprint Nextel (S) : Maintains 4 STARS (buy)
Analyst: Ken Leon, CPA, and Todd Rosenbluth
Sprint Nextel announced that COO Len Laurer has left the company. The CEO will assume Mr. Laurer's responsibilities. We believe the wireless unit is in transition as Sprint Nextel executes on the reorganization and integration of its customer bases, along with with other smaller acquisitions. In our opinion, Sprint Nextel should begin to improve on monthly customer churn that is above peers and stimulate net subscriber additions in early 2007. With the stock down 38% from its April high, the shares are trading well below our target price of $21; we believe the stock price will be aided by share buybacks.
Gasco Energy (GSX) : Starts at 3 STARS (hold)
Analyst: Charles LaPorta
Gasco Energy is a micro-cap company, primarily engaged in natural gas exploration and production, with operations located in the Uinta Basin of northeastern Utah. While we believe Gasco Energy has attractive unconventional resource leasehold position in the basin and we have a bullish outlook on natural gas prices, we are concerned by the company's mixed execution and its liquidity concerns. We estimate a per-share loss of 5 cents in 2006 and an EPS of 5 cents in 2007. Our 12-month target price at $3.50 reflects an average assessment of a range of potential net asset values.
Eaton (ETN) : Maintains 3 STARS (hold)
Analyst: John Hingher and Anthony Fiore
Eaton announces a voluntary general offer of HK$1.49 per share for Senyuan Int'l Holdings Limited, a Chinese manufacturer of vacuum circuit breakers and other electrical switchgear components with 2005 sales of RMB 374 million, or US $47 million. The offer price will increase to HK$1.62 per share if acceptances are received representing at least 90% of shares outstanding. We believe that the proposed acquisition, subject to approvals, would provide manufacturing and distribution capabilities for the medium-voltage electrical business in China. We maintain our target price of $73.
Visteon (VC) : Reiterates 2 STARS (sell)
Analyst: Efraim Levy, CFA
We are initiating our 2007 estimate with a projected loss per share of 33 cents. We are narrowing our projected 2006 loss to 76 cents from $1.30, since we expect margins to improve. This is in spite of our forecast of fourth quarter losses, based on a recent announcement from former parent and key customer Ford (F) of sharply lower vehicle production. With peer bankruptcies, as well as challenges at Ford, we consider earnings visibility to be limited. Above our 12-month target price, which remains at $6.50 (or .08 times projected 2007 revenues of approximately $11 billion) we would sell Visteon shares.
BB&T (BBT) : Maintains 4 STARS (buy)
Analyst: Christopher Muir
After further review of BB&T's second quarter earnings, we are increasing our 12-month target price by $3 to $49. The increase stems from our more favorable view of the company's expected medium-term earnings per share (EPS) growth rate. For 2006, we think BB&T will continue to benefit from ongoing strong earning-asset growth as well as increases in non-interest income, partly offset by a lower net interest margin. We also continue to expect that the expensing of stock options in 2006 will more than offset the impact of efficiency improvement. Our 2006 and 2007 EPS estimates remain $3.35 and $3.74.
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