S&P Sees Negatives for Google

Plus: Analyst opinions on Reliant Energy, Freddie Mac, Amgen, Nortel Networks, and 3Com

Google (GOOG): Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Following up on our initial analysis of the new online video effort from News Corp. (NWS) and the NBC Universal unit of GE (GE), we note that content will be distributed by four of the world's leading online networks/websites and that News Corp. and NBC content will be exclusive to their sites and the new site. The new site will also include user-generated content. We are a bit skeptical of the venture, and see notable challenges. But we see negatives for Google such as the likely removal of NBC content from Google's YouTube and pressure for better terms to content providers.

Nortel Networks (NT) - Ups to 3 STARS (hold) from 2 STARS (sell)

Analyst: Ari Bensinger

Following a 23% decline over the past month, the share price has reached our 12-month target price of $24. We continue to believe that meaningful near-term revenue growth will be difficult for Nortel to achieve, given heightening industry competition and increased buyers' power after carrier consolidation. Nevertheless, we expect Nortel to post significant margin improvement in 2007, reflecting lower operating expenses from aggressive restructuring initiatives. At under 1 times our 2007 sales estimate, we believe the share price adequately reflects the operating challenges we see ahead for Nortel.

Amgen (AMGN) - Ups to 4 STARS (buy) from 3 STARS (hold)

Analyst: Steven Silver

Amgen halts Vectibix Phase 3b PACCE trial for first-line combination regimen against colorectal cancer after preliminary data showed a negative effect on survival and increased toxicity compared with the control group. Despite the negative impact of this and other developments, including black box warning on Aranesp and Epogen labels, and subsequent lower growth outlook, we maintain our belief in Amgen's long-term strengths. While we lower our 12-month target price to $67 from $75, and 2008 EPS estimate to $4.71 from $4.80, we upgrade the shares on valuation after recent decline.

Reliant Energy (RRI) - Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Christopher Muir

Shares of Reliant have more than doubled over the past year. While we continue to have a positive view of the its EPS growth outlook, we think that the shares are now fairly priced. We continue to expect operating profit margins to more than double in 2007, from 2.3% to about 4.8%, on broad-based operating expense control coupled with strong growth in revenues. We expect that a significant reduction in net interest expense over next few years will also help the bottom line. Our EPS estimates remain at 43 cents for 2007 and 72 cents for 2008 and we keep our 12-month target price at $22.

Freddie Mac (FRE) - Maintains 3 STARS (hold)

Analyst: Stuart Plesser

Freddie reports 2006 EPS of $2.84, vs. $2.75 in the prior year, including a fourth-quarter loss of 85 cents vs. year-ago EPS of 90 cents. We believe Freddie is well positioned for the current mortgage environment based on the likelihood that borrowers will return to fixed-rate products, which comprise a large portion of the company's business. However, possible adverse government regulatory action restricting the company's retained portfolio limits our positive view. We are lowering our 2007 target price by $2, to $68, which, at roughly 2 times our 2007 book value projection, is in line with historical average.

3Com (COMS) - Reiterates 3 STARS (hold)

Analyst: Ari Bensinger

Before special items, 3Com posts February-quarter EPS of 3 cents, vs. a per-share loss of 3 cents one year earlier. This exceeds our estimate by a penny, reflecting strong gross margin improvement despite some weakness in core legacy networking business. We think 3Com has done an admirable job of resizing its cost structure to reach profitability. The company also gains Chinese government approval to acquire Huawei's 49% stake in the Huawei-3Com joint venture, though we see near-term divisional sales hampered by integration issues. On sum-of-the-parts valuation, our 12-month target price remains $4.

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