S&P Downgrades Palm to Hold
Palm (PALM) : Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Zaineb Bokhari
August-quarter operating EPS of 16 cents (after options), vs. 13 cents, is 3 cents above our estimate. Revenues were in line at $356 million, up 4%, and gross margin was 36.2%, vs. 30.5%, on an improving revenue mix. Palm sees November-quarter revenue of $430-$450 million, $50 million below what we had forecast, and we think competing smartphone entries are pressuring growth. We now see full fiscal year 2007 (May) revenue up 8% to $1.7 billion, down from previous $1.8 billion, and our EPS estimate falls 1 cent to 79 cents. We see 83 cents in fiscal year 2008. Our discounted cash flow (DCF)-based 12-month target price falls $1 to $17, on 11.6% weighted average cost of capital and 3% terminal growth.
Boston Scientific (BSX): Cuts to 2 STARS (sell) from 3 STARS (hold)
Analyst: Robert Gold
Boston Scientific sees third-quarter net sales of $1.97-$2.04 billion and operating EPS of 6-10 cents, vs. our estimates of $2.1 billion and 20 cents, respectively. We think Boston Scientific lost share in both the ICD and stent categories, and expect overall sales weakness to persist into 2007. Third-quarter Taxus sales alone appear to be down 13% from the second quarter, and 6% year-over-year. We are slashing our 2006 operating EPS estimate by 20 cents to 85 cents and 2007's by 30 cents to 95 cents. We expect some added cost cuts, but feel Boston Scientific may also explore sale of recently-acquired assets to reduce debt. Our target price drops $5 to $13 based on 2007 p-e below peers, inline with S&P 500.
Tribune (TRB) : Reiterates 3 STARS (hold)
Analyst: James Peters, CFA and Tom Graves, CFA
With the creation of a special board committee to oversee management's exploration of alternatives to create additional shareholder value, we see an increased likelihood of asset sales, alliances and or a spin-off. Also, we look for the restructuring of two partnerships that hold ownership interests to boost opportunities for change. We believe these actions should provide support for Tribune shares. Meanwhile, we estimate 2006 EPS of $2.02, and 2007's at $2.30. We are keeping our 12-month target price at $34.
Schawk (SGK) : Starts at 3 STARS (hold)
Analyst: Stuart Benway, CFA
Schawk is a major provider of digital graphics services to a variety of consumer, healthcare, and retail customers. It has a solid history of expansion, with average annual EPS growth of over 20% for the past decade, and we think its shares have strong long-term potential. However, a slowdown in the ad and entertainment sectors and reduced spending by its major customer will lead to lower profits this year, in our view. We estimate 2006 EPS at $1.15 and see 2007's at $1.35. Our 12-month target price is $20.
3Com (COMS) : Maintains 3 STARS (hold)
Analyst: Ari Bensinger
August quarter loss per share of $0.01 vs. an $0.08 loss, is a penny narrower than our $0.02 loss estimate. While the Huawei-3Com segment continues to show solid revenue momentum, 3Com's legacy networking segment is struggling amid rising competitive pressure. With operating expenses at nearly 50% of sales, we believe 3Com needs to do a better job of re-sizing its cost structure. Given the company's $2 cash per share and the value of the Huawei business, we are lowering our 12-month target price $0.50 to $4.50.
Take-Two Interactive Software (TTWO): Maintains 3 STARS (hold)
Analyst: Clyde Montevirgen
Take-Two Interactive Software announces that it has received a NASDAQ letter stating that it is non-compliant in not having filed its third-quarter 10-Q. The company has delayed filing, pending conclusion of its internal investigation of options. After Take-Two Interactive Software reported third-quarter results that it labeled as preliminary, we were expecting it to miss the filing date. We think probability for delisting, based on the late filing alone, is low. But we are wary of pending federal investigations and sales volatility during this video console transition period, and leave estimates and target price unchanged.