S&P Keeps Strong Buy on eBay

Plus: Analyst opinions on Hovnanian Enterprises, Oracle, and more

eBay (EBAY)

Reiterates 5 STARS (strong buy)

Analyst: Scott Kessler

The Dec. 19 Wall Street Journal contains an unconfirmed report that eBay will change its China strategy. The company would transition its current offering there to a joint service with Tom Online (TOMO), a leading provider of online and wireless services in China. The service would be 49%-owned by eBay and launch next year. We would view such a step as positive for eBay, given its notable difficulties in China. We think a minority stake would lower its risk, and still let it participate directly in China's growth. We note that Tom Online filed a 6-K on Dec. 19 indicating major company news pending.

Hovnanian Enterprises (HOV)

Maintains 2 STARS (sell)

Analyst: William Mack, CFA

Hovnanian's October-quarter loss of $1.88 per share, including $315 million in land-related charges, is in line with our estimate. Since we think further large land impairments will be necessary to match soft home demand, we are lowering our fiscal 2007 (October) EPS forecast to $1.20 from $3.50. Even so, we think stockholder's equity will fall only moderately this year. Based on better visibility on our fiscal 2007 estimate of book value (net of intangibles), we now think Hovnanian should trade about 10% below our $28 book value projection, and are increasing our 12-month target price to $25 from $22.

Oracle (ORCL)

Maintains 5 STARS (strong buy)

Analyst: Zaineb Bokhari

November-quarter operating EPS of 21 cents, vs. 19 cents one year earlier, was in line with our view. Revenue (non-GAAP) rose 24% to $4.22 billion, above our $4.18 billion view on currency movements, while new software licenses grew 14% to $1.21 billion, below our $1.25 billion outlook as some deals were delayed. We estimate organic license growth of 8%. We expect Oracle to close delayed deals in the seasonally strong second half of fiscal 2007 (ending May). We are raising our fiscal 2007 revenue view to $17.6 billion from $17.5 billion, but keeping our fiscal 2007 EPS estimate at 93 cents and fiscal 2008's at $1.06. Our discounted cash-flow-based target price is $22, assuming 10.1% cost of capital and 4% terminal growth.

Windstream (WIN)

Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Todd Rosenbluth

We are increasingly confident that Windstream will deliver EPS growth in 2007, despite competitive pressure. We are raising our 2007 EPS estimate $0.03 to $0.97 vs. $0.92 we see for 2006. In our opinion, EPS gains should come from stronger broadband customer growth, lower interest costs, and fewer shares. Our estimates exclude the impact of a pending sale of Windstream's directory business. Our 12-month target price rises $1 to $15. The shares are aided as well by a 7% dividend yield, which we see supported by strong cash flow.

Verisign (VRSN)

Reiterates 1 STAR (strong sell)

Analyst: Scott Kessler

Despite the recent governmental renewal of Verisign's ".com" domain registry contract, we see notable risks related to other areas of its operations. We believe that while Verisign is well-known for its Internet offerings, its exposure to the communications area is not well understood. In the third quarter, more than half of Verisign's revenues were derived from its communications unit. We see as negative for Verisign recent indications about relative weakness in high-end handsets, and the continuing delay of a major telecom merger. We also still see potential additional issues related to options backdating.

Greater Bay Bancorp (GBBK)

Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Stuart Plesser

We believe that Greater Bay Bancorp's earnings, which have benefited this year from reserve draw-downs, will come under pressure in the fourth quarter due to a deterioration in credit quality. In addition, we think an inverted yield curve will likely hurt the company's earnings, especially in light of time deposits as a percentage of total deposits jumping roughly 3% in the third quarter sequentially. Our 2006 EPS estimate falls by $0.01 to $1.65, and our 2007 remains $1.70. We are reducing our target price by $1 to $25, 15.3 times our 12-month forward EPS estimate of $1.62, in line with Greater Bay Bancorp's 5-year average.

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