S&P Cuts RadioShack to Strong Sell

Plus: Analyst opinions on Goldman Sachs, Google, and Halliburton

RadioShack (RSH)

Downgrades to 1 STARS (strong sell) from 2 STARS (sell)

Analyst: Michael Souers

RadioShack shares are up over 50% so far in 2007, and we think downside risk now far outweighs upside potential, with the shares trading at over 23 times our 2007 EPS estimate of $1.10. The company has boosted near-term operational efficiency by closing underperforming stores and controlling costs. However, continuous declines in same-store sales underscore the highly competitive nature of the electronics retail industry, in our view. We expect modest margin improvement in 2007 and 2008 despite slow projected sales, but see further expansion as limited. Our discounted cash-flow-based 12-month target price remains $21.


Ups to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Scott Kessler

eBay shares have fallen some 11% from the high established on February 26. Based on our 2007 EPS estimate of $1.15 after $0.18 in options expense, eBay's 2007 P/E is 27 times. We calculate its ratio of price-to-earnings to growth rate at 1.1. Given the recent price decline, we view the shares as compelling. We continue to believe that eBay's core franchises of eBay, PayPal, and Skype are healthy on a global basis, and will deliver notable revenue growth and margin improvement in 2007. We also expect advertising to drive material financial benefits. Our 12-month target price is $38.

Goldman Sachs (GS)

Reiterates 5 STARS (strong buy)

Analyst: Matthew Albrecht

February-quarter EPS of $6.67 vs. $5.08 exceeds our $4.75 estimate. Net revenues rose 22% to $12.7 billion, including $500 million from an accounting change. Investment banking results were aided by M&A volume and leveraged finance activity, two trends that we expect will continue into the April quarter. We expect recent volatility to aid equity results this quarter, and incentive fees should increase as well. We are raising our fiscal 2007 (ending November) EPS estimate by 46 cents to $21.81. We are maintaining our 12-month target price of $250, which at 11.5 times that estimate is in line with peers.

Google (GOOG)

Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Viacom (VIA.B) says it has sued Google and its subsidiary YouTube for "massive intentional copyright infringement" of its entertainment content. Viacom is seeking more than $1 billion in damages and injunctive relief. Viacom previously requested that its content be removed from Google websites. We see associated headline risk for Google, and believe other companies could take similar action. We also believe Viacom's positioning will pressure Google/YouTube to potentially offer more favorable terms to content providers, or alter elements of its business model.

Halliburton (HAL)

Reiterates 4 STARS (buy)

Analyst: Stewart Glickman

After speaking with the company, we still think the announced move of its headquarters to Dubai is largely intended as a signal to the market of the importance of the Eastern Hemisphere to future growth plans. We note that while Halliburton's CEO, David Lesar, will operate largely out of Dubai, the rest of senior management is currently slated to remain in Houston. Although Halliburton is the second-largest oilfield services outfit, next to Schlumberger (SLB), its share of 2006 oilfield services revenues from Eastern Hemisphere, at 38%, trails Schlumberger's 52% level.

Northstar Realty Finance (NRF)

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

Analyst: Jason Willey

Fourth quarter EPS from continuing operations of $0.28 vs. $0.07 is $0.09 ahead of our estimate; per-share funds from operations of $0.36 vs. $0.28 exceeded our $0.35 estimate. Positive results were driven by record new investments of $939 million, offset by higher compensation expense. Our upgrade reflects Northstar Realty Finance's strong credit performance, with no delinquencies or non-performing assets, and increased focus on asset management and joint ventures. We are increasing our 2007 Funds From Operation estimate to $1.56 from $1.51. We are lowering our target price by $2 to $16, 10.3 times our 2007 FFO estimate, reflecting lower peer multiples.

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