S&P Lifts Yum! Brands to Strong Buy

Plus: Analyst opinions on Staples, Deere & Co., and more

Yum! Brands (YUM)

Upgrades to 5 STARS (strong buy) from 3 STARS (hold)

Analyst: Mark Basham

Fourth quarter EPS of 83 cents, vs. 77 cents one year earlier, is in line with our view, and reflects about 6 cents for e.coli outbreak at Taco Bell during December, 2006. We are lowering our 2007 estimate by 15 cents to $3.25, of which 3 cents relates to lingering Taco Bell issue in the first quarter, and 12 cents is for higher 27.5% tax rate, vs. 26% expected. We see an opportunity for Yum to enhance shareholder value and accelerate growth of its China division via a flotation of a minority stake in the business. Using sum-of-the-parts analysis that values China operations at 20 times operating income, and our discounted cash-flow analysis, we are raising our target price by $7, to $72.

Staples (SPLS)

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

Analyst: Michael Souers

Ahead of Jan quarter earnings, which we expect March 1, we are downgrading Staples on valuation. We continue to view the company as the dominant player in the office supply retailing industry, and believe that growth prospects remain quite healthy both domestically and abroad. Furthermore, we believe industry dynamics, such as business spending trends and a rational pricing environment remain favorable. However, Staples shares are approaching our 12-month target price of $29, and are currently trading at about 18.5 times our fiscal year 2008 (Jan.) EPS estimate of $1.47, in line with peers.

Qiagen (QGEN)

Cuts to 1 STAR (strong sell) from 3 STARS (hold)

Analyst: Cameron Lavey

Third quarter EPS of $0.13 vs. $0.11 is in line with our estimate. Revenue rose 21% as contributions from new product introductions drove top-line growth. In our view, 2007 guidance for revenue of $518 to $535 million and an adjusted operating margin of 27% is disappointing. Our downgrade is based on valuation, since the shares currently trade at a 28% premium to peers, and we do not think such a premium is warranted. We are raising our 2007 EPS estimate by $0.01 to $0.56, but cutting our 12-month target price by $2 to $14, 25 times our 2007 estimate and in line with peers.

DaimlerChrysler (DCX)

Reiterates 1 STAR (strong sell)

Analyst: M.Cohen

Excluding items, DaimlerChrysler posts fourth quarter EPS of Eur 0.56 ($0.73) vs. Eur 1.06, above our Eur 0.04 ($0.05) estimate, on Mercedes Car outperformance. The Chrysler restructuring plan contained few surprises, and we expect a turnaround to be difficult, given a tightening market, increased competition, and mix difficulties. While comments that all options are on the table for a Chrysler divestment should offer the market hope, we find a convenient exit strategy as over-simplistic near term and see DaimlerChrysler committed to a Chrysler repair strategy. Our target price is under review.

Deere & Co. (DE)

Maintains 3 STARS (hold)

Analyst: A. Fiore, CFA

Deere posts January-quarter EPS of $1.04, vs. 94 cents, before one-time items in the year-ago period, well above our 80 cents estimate. Upside was driven by a significantly better gross margin than we anticipated. Equipment sales rose 3.4%, as gains of 9.9% in the agricultural equipment segment and 2.1% in the commercial and consumer segment more than offset a 6.5% decline in the construction and forestry division. The company raises its guidance for fiscal 2007 (ending October) net income to $1.4 billion from $1.325 billion. We will update after Deere's Feb. 14 conference call.

La-Z Boy (LZB)

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

Analyst: T. Smith, CFA

La-Z Boy posts January-quarter EPS of 13 cents vs. EPS of 19 cents, which is above our 8 cents estimate. Including discontinued operations, the company posted a loss of 15 cents vs. 20 cents EPS. Revenue was down 10%. Despite planned divestitures, we foresee flattish revenue trends for fiscal 2008 (ending April). We are lowering our fiscal 2007 EPS estimate to 24 cents from 35 cents, and maintaining 45 cents for fiscal 2008. Applying a p-e multiple of 27 times, near the high end of the stock's historical range to allow for depressed industry conditions, to our fiscal 2008 EPS estimate, we are lowering our 12-month target price to $12 from $13.

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