S&P "Skeptical" News Corp.-NBC Deal Will Work

Plus: Analyst opinions on CVS/Caremark, Affiliated Computer Services, and more

Google (GOOG)

Reiterates 3 STARS (hold)

Analyst: Scott Kessler

A number of media and Internet companies plan to create a premium online video website, in our view seeking to compete with Google's YouTube. News Corp. and General Electric's NBC Universal unit will offer TV and movie content, and distribution will be by AOL, MSN, MySpace and Yahoo covering some 96% of monthly unique U.S. Internet users. This planned venture has prominent constituents, considerable assets and initial advertisers. But we are skeptical about its prospects, given multiple backers with potentially divergent agendas and priorities.

News Corp. (NWS)

Maintains 4 STARS (buy) on Cl. B shares

Analyst: Tuna Amobi, CPA, CFA

News Corp. and General Electric's (GE) NBC Universal unit plan a Summer 2007 launch of an ad-supported site with video content from these two media conglomerates. After Viacom's (VIA.B) suit against Google's YouTube, we would not be surprised if more mainstream content providers align with potential rival site. Still, we think it is early to say whether the venture could challenge entrenched sites, despite the heft of Internet distribution partners AOL (TWX), MSN (MSFT), News Corp.'s MySpace, Yahoo! (YHOO), and a seemingly impressive roster of five charter advertisers.

Motorola (MOT)

Reiterates 4 STARS (buy)

Analyst: Kenneth Leon, CPA

After further review of Motorola's announcement today, we are lowering our 2007 EPS estimate to 50 cents from $1.10, and 2008's to $1.15 from $1.25. Reduced EPS is tied to increased business risk for Motorola's handset unit, partly offset by its plan to buy back $7.5 billion of $11.5 billion in stock repurchases authorized. We see normalized handset operating margins at 5% level starting in the third quarter, as Motorola shifts plan away from market share and to profits. In our view, execution risk remains for our buy opinion and $22 target price, but Motorola has scale advantages to ride through a challenging first half of 2007.

CVS/Caremark (CVS)

Reiterates 5 STARS (strong buy)

Analyst: Joseph Agnese

CVS completes the acquisition of Caremark Rx and renames the combined company CVS/Caremark. The new CVS will launch a cash self-tender offer in about five days for 150 million shares at $35. We are keeping our 2007 EPS estimate of $1.90, believing costs of integration and disruption will offset initial benefits from share repurchases and cost synergies. But we are raising 2008's by 9 cents to $2.29, based on our view that a differentiated customer offering will lead to new wins in pension benefit management and retail customer retention. We are keeping our $41 p-e-based 12-month target price.

Affiliated Computer Services (ACS)

Reiterates 3 STARS (hold)

Analysts: D. Kaplan, D. Cathers

An unconfirmed Wall Street Journal report says that a note by Chairman Darwin Deason discussed the practice of always picking the lowest prices in the quarter to award stock options. This follows an investigation into backdating following which two top executives resigned. Deason and Cerberus Capital yesterday proposed a buyout of ACS at $59.25. ACS says shareholders are suing to block the proposal, claiming it undervalues the company. We are maintaining our 12-month target price of $61.

Ruby Tuesday (RI)

Cuts to 2 STARS (sell) from 4 STARS (buy)

Analyst: Mark Basham

We are lowering our Feb. quarter EPS estimate by $0.01 to $0.53, full fiscal year 2007 (ending May) estimate by $0.03 to $1.70, and fiscal year 2008's by $0.05 to $1.85, mostly on concerns about price competition in the casual dining segment. We think Ruby Tuesday, with 12/06 debt of about 1.5 times estimated fiscal year 2007 EBITDA, and after committing in 2006 to a sizably increased dividend, is increasingly turning to franchising to maintain system growth, such as news today that a Middle East franchisee will expand by 25 units over seven years. We are cutting our 12-month target price by $2 to $29.

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