S&P: Little Threat to Apple from AOL Music Now

Plus: Analysts downgrade Capital One Financial, raise estimates on MetLife, and more

From Standard & Poor's Equity Research

Apple Computer (AAPL) : Reiterates 5 STARS (strong buy)

Analyst: Richard Stice, CFA and Scott Kessler

RealNetworks (RNWK) : Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Yesterday Time Warner's AOL (TWX) launched AOL Music Now, which offers access to 2.5 million audio tracks, thousands of music videos, and more than 200 AOL radio stations plus some XM Radio (XMSR) channels. Also, Universal Music Group, home to 50 Cent, Bon Jovi and Elton John, said its catalog will be made available to start-up SpiralFrog's free and legal, ad-supported online music service. But with Apple's strong brand and marketshare, as well as its proprietary offerings, and compelling ease-of-use in MP3 players (iPods) and online music (iTunes), we do not see a material impact.

We believe this news portends for greater direct competition and potential pricing pressure for RealNetworks, which generated more than a third of its second quarter revenues from music offerings.

China Life Insurance (LFC) : Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: D. Ch'ng

First half 2006 net profit rises 72% to $1.1 billion. Excluding investment gains, the results were 23% above our forecast. Results showed stronger growth than we expected in gross written premiums, which rose 29% from a year ago, compared with our projected full-year growth of 22%. Net investment income was higher than we anticipated on better yields. Our 2006 earnings per ADS estimate rises to $2.67 from $2.17 and we are increasing our 12-month target price to $77 from $49, 28.8 times that estimate, a premium to peers based on our assumption of accelerating growth in first-year premiums.

Semtech (SMTC) : Cuts to 2 STARS (sell) from 4 STARS (buy)

Analyst: Thomas Smith, CFA

Semtech reports preliminary July quarter revenue of $64.9 million, below our estimate of $67.9 million. No EPS is provided while an internal review of stock option practices continues. The company expects to restate financial statements from 2002 through 2006. Given weak sales to handset markets, several management changes, and legal costs we foresee from an SEC inquiry, we are lowering our fiscal year 2007 (ending Jan.) EPS estimate, after option expense, to 52 cents from 65 cents, and fiscal year 2008's to 68 cents from 81 cents. Our 12-month target price drops to $11 from $20.

Capital One Financial (COF) : Cuts to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Mark Hebeka, CFA

While we continue to have a favorable view of Capital One's long-term strategy and its growth prospects, we see potential near-term challenges. We believe margin pressure may persist, and see elevated credit quality and integration risk related to the proposed acquisition of North Fork Bancorp (NFB), pending approvals. We are trimming our 2006 estimate to $8.07 from $8.10, but keeping 2007's at $8.08, excluding North Fork Bancorp. Our target price falls to $82 from $97, 10.2 times our 2006 earnings per share (EPS) estimate. This is well below historical averages, which we think is appropriate for what we see as a higher risk profile.

Sycamore Networks (SCMR) : Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth and Ari Bensinger

Sycamore Networks reports July quarter revenues of $16.3 million, well below our $23.8 million forecast. Because of an ongoing inquiry into its stock option grant procedures that may result in restatement, Sycamore Networks did not report full financial results. We believe the revenue shortfall reflects the challenges the second-tier optical switching supplier faces as telecom customers gain purchasing power. But trading close to book value, below peers, and near its $3.50 cash per share level, we believe Sycamore Networks is worth holding for a potential sale of the company.

MetLife (MET) : Reiterates 5 STARS (strong buy)

Analyst: Frank Braden

According to an unconfirmed report in the New York Times, MetLife plans to sell two large apartment complexes in New York City. The company had previously announced that it was mulling options with respect to its Peter Cooper Village and Stuyvesant Town properties. The target sale price is reported to be $5 billion, which MetLife could use for short-term debt payments to achieve its target debt-to-capital and for added share buybacks. We are raising our 2007 operating EPS estimate by 5 cents to $5.25, and keeping our 12-month target price at $64, 13 times our 2006 operating EPS estimate of $4.95.

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