S&P Raises Target on H&R Block

Plus: Analyst opinions on Cheesecake Factory, Warner Music Group, and more

H&R Block (HRB)

Maintains 2 STARS (sell)

Analyst: Jon Kolb

The company reports a seasonal Oct. quarter loss per share of $0.49, $0.23 wider than our estimate and $0.24 wider than last year's loss. The shortfall is primarily the result of lower mortgage originations than we expected. H&R Block also says that it has had "a high level of interest" from potential buyers of its Option One mortgage lending unit, and expects to decide on a course of action for the unit sometime in the new year. We are reducing our fiscal year 2007 (Apr.) earnings per share (EPS) estimate by $0.21, to $1.21, but raising our 12-month target price to $22 from $18.

Cheesecake Factory (CAKE)

Reiterates 5 STARS (strong buy)

Analyst: Dennis Milton

Third quarter EPS of $0.23 vs. $0.27 is a penny below our estimate. In addition, Cheesecake Factory reports second quarter EPS, delayed while the company resolved stock option accounting issues, of $0.30 vs. year-earlier $0.29, $0.03 above our estimate. Results reflect the inclusion of stock option expenses of $0.03 and $0.04, respectively, in the June quarter and September quarter. We are raising our 2007 EPS estimate by $0.07 to $1.23 and our 12-month target price by $2 to $37 on lower food costs and taxes. At 26 times our 2006 EPS estimate of $1.01, trimmed $0.01 today, we do not think the shares adequately value Cheesecake Factory's growth prospects.

Warner Music Group (WMG)

Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CPA and CFA

Before a $0.09 one-time gain, September quarter loss per share of $0.01 vs. $0.07 loss is $0.01 shy of our profit expectation. Tough comps should continue into early fiscal year 2007 (ending Sep.), but we see Warner Music Group staying aggressive in digital space, which contributed to an industry-leading 12% of the company's total fourth quarter revenue, and is likely to ramp nicely in the next 3 to 5 years. Our 12-month target price rises $2 to $28. But we see the Merger & Acquisition catalyst as unlikely.

Wal-Mart Stores (WMT)

Reiterates 4 STARS (buy)

Analyst: Joseph Agnese

November comp-store sales declined 0.1%, in line with our expectations, and Wal-Mart Stores sees December comp-store sales growth at 0% to 1%, in line with our 0.5% forecast. We expect near-term sales to be pressured by weaker apparel sales and difficult comps related to last year's hurricanes. We look for sales trends to improve in the spring, when new merchandise is offered and hurricane comparisons ease. Meanwhile, we expect Jan. quarter results will be driven by new store expansion and improved inventory control. Our 12-month target price remains $53.

Home Depot (HD)

Reiterates 5 STARS (strong buy)

Analyst: Michael Souers

According to an unconfirmed report on CNBC, private equity investors Texas Pacific and Kohlberg Kravis Roberts & Co. are considering a buyout deal for Home Depot that could be worth $100 billion. That would make the deal the largest LBO in history. While we think that ultimately it is unlikely that a deal will take place, we are not surprised by private equity interest, given Home Depot's depressed share price over the past few years. Our 12-month target price remains $48, which would value Home Depot at about $100 billion.

General Motors (GM)

Reiterates 2 STARS (sell)

Analyst: Efraim Levy, CFA

Based on an unconfirmed Wall Street Journal report, as well as stock trading activity yesterday afternoon, we believe investor Kirk Kerkorian has divested the balance of his 56 million GM shares. While we would not rule out the chance of a Kerkorian strategic return to GM, we think he will focus on other investments. This should leave company management focused on progress in its restructuring. For a successful turnaround, we believe GM must implement existing plans that include successful new products rollouts, and negotiate savings and efficiencies with the UAW in 2007.

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