S&P Keeps Strong Buy on Oracle

Analyst Zaineb Bokhari says buying Hyperion Solutions fits Oracle's interest in business intelligence. Plus: analysts' comments on Lab Corp., Microsoft and more

Oracle (ORCL): Maintains 5 STARS (strong buy)

Analyst: Zaineb Bokhari

Oracle agrees to acquire Hyperion Solutions (HYSL; ranked 3 STARS, hold) at $52 cash, a 21% premium to yesterday's close. Valued at $3.3 billion, or $2.9 billion net of cash, the deal is expected to close in April 2007, subject to approvals, and is expected to be accretive to operating EPS by 1 cent in fiscal year 2008 (May) and 4 cents in fiscal year 2009. We think the purchase is consistent with Oracle's stated interest in the business intelligence space. Oracle gains a strong line of financial analytical products and stands to benefit from Hyperion's strong presence in the CFO office. We have made no change to our estimates.

Laboratory Corp. of America (LH): Maintains 5 STARS (strong buy)

Analyst: Jeffrey Loo, CFA

Lab Corp. loses its Aetna (AET) contract effective July 1, presumably to Quest Diagnostics (DGX), and cuts 2007 EPS guidance by 4-12 cents. We view the contract loss as a blow to Lab Corp., as we expected it to aggressively pursue contracts, particularly in the Northeast, as it builds out infrastructure for the UnitedHealthcare deal. We see pricing pressure as a result of these deals, but we think the labs will moderate their terms to maintain and stabilize margins. We lower our 2007 EPS estimate by 10 cents to $3.90, and our target price by $8 to $90 on a 1.5 p-e-to-growth ratio.

Take-Two Interactive (TTWO): Reiterates 1 STAR (strong sell)

Analyst: Clyde Montevirgen

Take-Two reports GAAP fourth-quarter loss per share of 20 cents, vs. year-ago restated GAAP EPS of 27 cents. On an operating basis, we calculate a per-loss share of about 10 cents, including option expense, well below our EPS estimate of 27 cents, reflecting higher-than-expected operating costs and differences in our tax rate. Revenues were down 13% from last year's restated results, and 21% below our model. Take-Two provided fiscal year 2007 (October) revenue and earnings guidance below our view. We remain cautious about what we see as weak fundamentals and growth prospects relative to those of Take-Two's competitors.

EchoStar Communications (DISH): Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Fourth-quarter EPS of 35 cents, vs. 31 cents, is 3 cents above S&P and Street estimates. Fourth-quarter net subscriber adds of 350,000 was in line with expectations, continuing an improvement since the second half of 2006 as key metrics were relatively stable or slightly improved. With the court's permanent injunction under appeal, DISH says in a 10-K that the October 2006 takedown of 'distant networks' caused a 'small' reduction in average revenue per user and free cash flow. We also see legal uncertainties related to patent suit vs. TIVO (TIVO), also in appeal. We expect competition from cable triple-play to ratchet up in 2007.

Microsoft (MSFT): Maintains 3 STARS (hold)

Analyst: Jim Yin

The European Union threatens Microsoft with new fines as high as 3 million euros a day, claiming the company failed to disclose complete and accurate information that competitors need to develop software for work group servers. Given the European Union's antagonistic stance and Microsoft's reluctance to change its practice, we believe this development will result in Microsoft paying additional fines. Although the maximum annual fine amounts to 14 cents per share, we think the impact will be more significant on Microsoft's business by making it more difficult for it to protect its server market.

Viacom (VIA.B): Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Before a 4 cents net one-time gain, fourth-quarter EPS of 65 cents on 7% fewer shares, vs. 37 cents pro forma, beats our estimate by 9 cents. Total ad revenues grew an in-line 6%. But we saw upside mostly in Viacom's film division, aided by the DreamWorks acquisition and DreamWorks Animation (DWA) distribution fee. We see further film upside in 2007 after the strong awards season on strength of titles such as Dreamgirls, Babel and An Inconvenient Truth, as well as Charlotte's Web. We also see margin upside with the restructuring at MTV Networks, digital initiatives, and double-digit EPS growth.

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