S&P Ups Restoration Hardware to Hold

Plus: Analysts upgrade Global Payments, downgrade First Horizon National, and more

From Standard & Poor's Equity Research

Restoration Hardware (RSTO) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Michael Souers

July quarter earnings per share (EPS) of a penny vs. a loss of 7 cents, is 8 cents better than our estimate. Sales increased 24%, driven by direct-to-customer business, despite macroeconomic headwinds. We believe operating leverage was largely driven by strong product margins, partly attributable to success of Restoration Hardware's Outdoor Catalog. We are raising our fiscal year 2007 (ending Jan.) and fiscal year 2008 EPS estimates to 17 cents and 32 cents, from 11 cents and 26 cents, and our 12-month target price to $7.50 from $5.50. The shares are now trading at 22 times our fiscal year 2008 EPS estimate.

Global Payments (GPN) : Ups to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Zaineb Bokhari

Global Payments shares are down 17% since reporting May quarter results on 7/28, trading below historic averages. We believe the decline stems from concerns about margin pressure from Global Payments's JV with HSBC and rising competition within its third-party sales channel. In our view, Global Payments has a strong, stable management that has a track record of solid execution and rising profitability, and we expect this to continue. Our operating EPS remain $1.67 for fiscal year 2007 (ending May) and $1.95 for fiscal year 2008. Our $51 target price assumes a 10.5% weighted average cost of capital and 3% terminal growth.

First Horizon National (FHN) : Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Stuart Plesser

First Horizon National announces that a combination of margin contraction and a reduction in loan origination in its mortgage business will reduce third quarter operating earnings by $35 million from second quarter levels. We are lowering our third quarter and fourth quarter 2006 EPS estimates by 24 cents and 6 cents, respectively, to 60 cents and 75 cents, and reducing 2007's by 14 cents to $3.30. As a result, we are cutting our 12-month target price by $6 to $36. At 12 times our 12-month forward EPS estimate of $3.03, this reflects a discount to peers which we believe is warranted by our view of First Horizon National's earnings volatility.

CBOT Holdings (BOT) : Ups to 2 STARS (sell) from 1 STAR (strong sell)

Analyst: Jason Willey

With the shares down 12% since 8/15 versus a 0.9% gain for the S&P 500, we see lower downside risk. Most of CBOT Holdings's valuation premium to peers has now been eliminated. While the shares are now trading more closely in line with exchange industry multiples, we continue to be concerned by CBOT Holdings's concentrated revenue base, the potential negative impact on trading volumes of a more benign interest rate environment, and the lack of positive catalysts. Our 2006 and 2007 EPS estimates remain $3.14 and $3.75, and our 12-month target price stays $105, or 28 times our 2007 EPS estimate.

Wyndham Worldwide (WYN) : Starts covering at 3 STARS (hold)

Analyst: Thomas Graves, CFA

We look for the shares of this vacation ownership resort company to be bolstered by prospects we see of generating cash flow that can be used to fund expansion and buyback shares. The company's operations also include exchange and rental of vacation properties, and hotel franchising. Before special items, we estimate 2007 EPS of $1.95. Our 12-month target price of $30, at 15.4 times that estimate, reflects a blend of sum-of-the-parts and discounted cash flow approaches, with the latter including a 9.0% weighted average cost of capital and perpetuity annual cash flow growth of 3%.

Bally Technologies (BYI) : Maintains 2 STARS (sell)

Analyst: Thomas Graves, CFA

We expect Bally to provide restated results in September for fiscal year 2003 (ending June), fiscal year 2004, and fiscal year 2005. Generally, we believe restatements will shift revenue and operating income into more recent periods. While the conclusion to an accounting review may not be negative, the apparent need for a review of past accounting and lack of better visibility on financial results contribute to our negative opinion on the stock. By year-end 2006, we look for 10-Q filings for the first 9 months of fiscal year 2006. The 10-K for fiscal year 2006 may be filed by 11/06. We are placing our EPS estimates under review.

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