S&P Cuts Nortel Networks to Sell

Plus: Analyst opinions on Constellation Brands and Vishay Intertechnology

Nortel Networks (NT)

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

Analyst: Ari Bensinger

Nortel announces its CFO Peter Currie will resign, after taking the position less than two years ago. With Nortel's recent restatements due to accounting issues, as well as high turnover in several senior officer posts, we think the company needs to better stabilize its management group, especially as it is looking to improve profitability through cost-cutting and non-core asset disposals. We see heightened competition and carrier consolidation hampering market growth opportunities, and we forecast 2007 sales growth at 3%, below peers. Our $24 target price is based on relative analysis.

Constellation Brands (STZ)

Reiterates 4 STARS (buy)

Analyst: Raymond Mathis

Constellation reaches agreement with Guillaume Cuvelier and Alcofinance S.A. to acquire their SVEDKA Vodka for $384 million. The purchase is expected to occur March 1, subject to closing. We believe the company was attracted to SVEDKA's leading marketshare among imported vodka, and 60% growth rate in the U.S. We believe the premium brand will be a good fit with Constellation's existing portfolio, and should benefit from enhanced distribution opportunities. However, the company expects dilution to earnings from the transaction. Trading below our target price of $28, we continue to view Constellation's stock as a buy.

Vishay Intertechnology (VSH)

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

Analyst: J. Hingorani

Vishay posts fourth quarter EPS of 19 cents, before acquisition related one-time charges, vs. 14 cents one year earlier, 4 cents below our estimate. Full 2006 sales rose 12%, though they were $10 million below our estimate. EPS was 99 cents vs. 34 cents. We are pleased with the strong cash flow from operations and see this trend continuing in 2007. We are raising our 12-month target price $4 to $15, 16.7 times our 2007 cash per share estimate, in line with historical averages. We see growth in 2007 from pricing stability, strong backlog, and a better book-to-bill ratio, especially in Passives. We see first quarter 2007 EPS of 15 cents.

National Fuel Gas (NFG)

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

Analyst: Christopher Muir

December quarter EPS of $0.62 vs. $0.67 matches our estimate. Revenues and fuel costs were lower than we forecast; non-fuel operating expenses were higher than we expected. National Fuel Gas's shares are up about 6% today as National Fuel Gas raises its guidance range by $0.05 to $2.15-$2.35. But we think the stock has risen too far, to a 22% premium to peers. We are slightly upping our fiscal year 2007 (Sep.) EPS estimate by $0.01 and fiscal year 2008's by $0.02 to reflect adjustments to our model, and boosting our 12-month target price by $1 to $40 on the estimate changes, but to just a 3% premium to peers. National Fuel Gas shares are yielding 2.8%.

Kongzhong (KONG)

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

Analyst: Jim Yin

The ADSs have declined about 24% in the past month and 8% today. We believe part of the decline can be attributed to delays in the launch of 3G, and to a profit warning from a China-based Internet company, which may indicate slower growth in China. Despite these issues, we believe Kongzhong will benefit from the long-term growth of wireless value-added services in China, aided by its relationship with China Mobile. We are keeping our 12-month target price of $9 based on an industry ratio of P/E to growth at 1.5 times, or 29 times our 2007 earnings per ADS estimate of $0.31.

Earthlink (ELNK)

Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Earthlink posts fourth quarter per-share loss of $0.20 vs. EPS of $0.22, $0.16 wider than our loss forecast. Revenue increased 5%, reflecting acquisition of New Edge Networks and continuing declines in narrowband. Earthlink continues to invest in emerging businesses such as voice services, Wi-Fi networks, and Helio, but we remain somewhat skeptical of their long-term prospects. Earthlink continues to repurchase shares and generate free cash flow. However, given the substantial additional investments we foresee in 2007, we are lowering our 2007 estimate to a loss of $1.08 from EPS of $0.16.