S&P Downgrades Beazer Homes to Sell

Plus: Analyst opinions on Apple, Microsoft, Bowater, and more

Beazer Homes USA (BZH)

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

Analyst: Thomas Smith

News reports say Beazer Homes's mortgage lending practices in Charlotte, NC, are under review by the Federal Bureau of Investigation and Inspector General of Housing & Urban Development. Our downgrade reflects our view of the impact on investor sentiment, as well as the legal staff costs merely to cooperate, at a time of weakness in the housing market. We are widening our fiscal year 2007 (Sep.) loss estimate to $1.35 from $0.90, and we are reducing our fiscal year 2008 earnings per share (EPS) estimate to $2.50 from $2.70. We are lowering our 12-month target price to $24 from $44.

Apple Inc. (AAPL)

Reiterates 5 STARS (strong buy)

Analysts: Richard Stice, CFA, Scott Kessler

At the CTIA Wireless convention yesterday, AT&T's (T) chief operating officer said, "One million people have asked us to call them when [Apple's iPhone] is available." We take this comment as a strong indication of the potential demand for the device, which is scheduled to ship in June. We continue to think Apple can benefit materially from the iPhone by taking just a small share of the handset market. One of the primary reasons we like Apple is that we expect continuing share gains in computers and notebooks, reflecting Intel chips, a new operating system, and PC compatibility.

Microsoft (MSFT)

Reiterates 3 STARS (hold)

Analyst: Jim Yin

Microsoft announces the availability in April of the Xbox 360 Elite, a new model of the video game system that will include a larger hard drive, a high-definition multimedia interface port, a wireless controller, and an Xbox LIVE headset. Although we expect this new model to boost Xbox sales, we believe Microsoft will have difficulty in catching up to Nintendo's (NTDOY) Wii, which, in our opinion, has expanded the video game market to younger and older generations beyond the male population aged 18-35. We are not changing our estimates and are keeping our $32 target price.

Bowater (BOW)

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

Analyst: S. Benway, CFA

We now see a wider loss at Bowater of 50 cents per share in 2007, increased from our prior loss estimate of 15 cents, and for 2008 we now project EPS of 10 cents, reduced from 50 cents previously. Demand for newsprint in North America has declined 11.5% in 2007 vs. 2006, while prices are down 6%. At the same time, costs for raw materials such as pulp and recycled fiber have risen steadily in recent months causing Bowater to idle some of its plants. We are reducing our 12-month target price to $20 from $31 on lower expected cash flow inputs in our discounted cash-flow model.

Ford Motor (F)

Maintains 3 STARS (hold)

Analyst: James Peters and Efraim Levy

We are widening our projected loss for 2007 by $1.06 to $2.30, primarily reflecting a reduction in forecasted profits for the financial services segment, but also based on a softening outlook for U.S. automotive operations. We are reducing our 12-month target price by $1 to $9, or 15 times our 2007 sales estimate. Although we do not expect Ford's North American operations to be profitable in 2007 or 2008, and we see significant cash outflows from operations and restructuring during that period, we believe the company has sufficient liquidity to fund its turnaround efforts.

EchoStar Communications (DISH)

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

Analyst: Tuna Amobi

Shares are up 35% in the past six months (50% in past year), possibly on unwarranted takeover premium, we think. We are maintaining our target price of $40 on relative enterprise value per EBITDA and per subscriber vs. the peer DirecTV (DTV). Despite what we saw as improved second half 2006 net subscriber adds, we see 2007 competitive exposure to cable's triple-play, while telcos also encroach with fiber-based video. While the impact of the recent take-down of "distant network" channels now seems manageable, we see uncertain appeal of adverse ruling on a TiVo (TIVO) patent suit.