S&P Boosts British Airways to Buy

Plus: Analyst opinions on Citigroup, Bausch & Lomb, and McAfee

British Airways (BAB)

Upgrades American Depositary Receipts to 4 STARS (buy) from 3 STARS (hold)

Analyst: James Corridore

We think the company's ADRs have overcorrected recently to news of a potential open-skies deal, rising oil prices, and general market weakness. While it could lose slots in London, we think British Airways should have enough time to mitigate the potential impact. Our 12-month target price of $116, unchanged today, values the American Depositary Shares at 12 times our fiscal 2008 (ending March) estimate, about in line with the average of major network carrier peers that we cover. We continue to think the company should benefit from strong demand from premium passengers, as well as from strong cost controls. However, we view the ADRs as high risk.

Citigroup (C)

Maintains 5 STARS (strong buy)

Analysts: Frank Braden, Stuart Plesser

Citigroup announces a tender offer of 1,350 yen for each Nikko Cordial share; a deal valued at up to $10.8 billion. Nikko, Japan's third-largest brokerage by revenue, has been seeking to restructure its business after accounting irregularities were revealed in December. We favor the acquisition, as Nikko's more than 100 Japanese branches would boost Citigroup's presence in Japan and provide a meaningful platform for it from which to sell mutual funds and services. Our 12-month target price of $63 is 13.7 times our 2007 EPS estimate, in line with the stock's historical average.

Bausch & Lomb (BOL)

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

Analyst: Robert Gold

Bausch & Lomb issues preliminary results for 2006. It sees net sales at $2.3 billion, in line with our forecast but down 3% from 2005, and pretax earnings before minority interests at $70 million, vs. $246 million in 2005. It will report net earnings and EPS figures after completion of a review of appropriate tax rate. The company expects 2007 sales of $2.5 billion, also in line with our forecast, and pretax earnings before minority interests at $220 million. Assuming a 33% tax rate, we are keeping our 2007 EPS estimate at $2.50. But on better visibility, we raise our 12-month target price $7 to $54 on an 2007 p-e in line with peers.

McAfee (MFE)

Maintains 3 STARS (hold)

Analyst: Jim Yin

McAfee names Dave DeWalt to serve as the company's CEO and president starting April 2, 2007, replacing interim President and CEO Dale Fuller Previously, DeWalt was president and CEO of Documentum, a content management software company that was acquired by EMC (EMC) in 2003. We believe that he may be put in a similar role with McAfee; that of positioning the company as a potential takeover candidate. We see this announcement as a positive, but we are maintaining our 12-month target price at $33.

Audible (ADBL) : Cuts to 1 STAR (strong sell) from 2 STARS (sell)

Analyst: Scott Kessler

Shares have surged 35% since Audible posted fourth quarter results last week, and we believe the stock is even more overvalued than our previous view. We expect that 2007 margins will be restrained somewhat by rising costs related to content and customer acquisition. Moreover, we believe the recent appreciation in the share price reflects a notable short position in the stock. We project operating and net losses for 2007, and expect the company's execution to be inconsistent. We are keeping our 12-month target price at $9.

International Securities Exchange (ISE): Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Jason Willey

Our downgrade reflects our concerns about increasing competition, the long-term impact of penny-quoting, and the potential for slowing industry growth. While volumes for equity options have accelerated in recent days, following greater underlying market volatility, we believe prolonged market weakness would be negative for ISE, given its retail exposure. We think ISE has lost market share recently, and we expect move to penny-quoting will encourage further competition. We are lowering our target price by $2 to $44, 25 times our 2007 EPS estimate, a 30% discount to peers.

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