S&P: Still Hold Google, Sell EchoStar

Plus: Analyst opinions on Reliance Steel & Aluminum, China Netcom, and more

Google (GOOG)

Reiterates 3 STARS (hold)

Analyst: Scott Kessler

EchoStar Communications (DISH)

Maintains 2 STARS (sell)

Analyst: Tuna Amobi, CPA, CFA

Google announces it has partnered with EchoStar to "introduce the first automated system for buying, selling, delivering and measuring television ads" on EchoStar's national Dish TV satellite networks. For Google, we think this is an important development as it pushes into more traditional media advertising, and we see significant associated opportunities for the company. However, we have been skeptical of Google's efforts in this area: for example, we do not think it has garnered much traction in the radio segment, despite notable initial interest and material company investment.

As for EchoStar, we think improved addressability could appeal to new advertisers, and the pact perhaps signals the company's renewed long-term commitment to growing its relatively small ad revenue base. But with limited financial contributions from such initiatives in the past few years, we see a real challenge translating this venture into meaningful ad dollars, as more clutter makes consumers skip more ads.

Reliance Steel & Aluminum (RS)

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

Analyst: Leo Larkin

Our opinion change is based on valuation. We continue to estimate earnings per share (EPS) of $5.28 in 2007 and $5.05 in 2008. We see 2007 EPS benefiting from firming carbon steel prices along with continued strong demand from non-residential construction and other end markets. Long-term, we see Reliance benefiting from acquisitions and ongoing consolidation of the highly fragmented metals service center industry. But with the shares now trading with limited upside to our p-e-based 12 month target price of $53, we would hold, but not add to positions.

China Netcom (CN)

Maintains 2 STARS (sell) on ADRs

Analyst: R. Lin

China Netcom's '06 earnings per American Depositary Share of $5.00 beats our estimate of $4.80, primarily due to a lower tax rate. Revenue rose 2.0%, aided by growth in broadband and value-added services. However, as expected, the company's fixed-line business was unimpressive, with total voice subscribers remaining flat after a rise of 6.7% in 2005, and with voice revenue declining on lower usage. We are reducing our 2007 earnings per ADS estimate by 29 cents to $4.71. We base our 12-month target price of $49 on our discounted cash-flow analysis, which assumes a weighted average cost of capital of 10.3% and terminal growth rate of 2%.

Kinetic Concepts (KCI)

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

Analyst: Robert Gold

Kinetic Concepts says implementation of a competitive bidding process by the Centers for Medicare and Medicaid Services will hurt rentals and sales of its Vacuum Assisted Closure products. We continue to expect that competitive bidding will result in additional pressure on corporate margins in 2008 and beyond. We are keeping our 2007 earnings per share (EPS) estimate at $3.10, but lowering 2008's by $0.05 to $3.25 to reflect lower Medicare pricing beginning Apr. 2008. The stock has been moving higher today following an analyst upgrade, but with the shares now trading above our $51 12-month target price, we would sell.

Apple (AAPL)

Reiterates 5 STARS (strong buy)

Analyst: Scott Kessler

The European Commission today confirmed that it sent Statements of Objections to Apple and major record companies, alleging their European distribution agreements contain territorial sales restrictions that violate EC law. We believe the EC is concerned that country-specific iTunes websites offer the same songs to Europeans at different prices, as Europeans can only purchase iTunes music from the website in the country they live in. Apple has two months to respond in writing to this formal antitrust matter. Apple faces possible fines, but we think it favors a continental iTunes offering.

Comcast (CMCSA)

Maintains 4 STARS (buy)

Analyst: Tuna Amobi

Comcast agrees to acquire privately held Patriot Media for $483 million in cash. While the purchase consideration for the small cable operator translates into what we view as a premium $5,960 enterprise value per subscriber, we note Patriot's fully upgraded systems are located contiguously to Comcast's systems in Central and Northwest New Jersey. With regulatory approvals, closing is seen by the third quarter 2007. With integration of newly acquired Adelphia/Time Warner systems evidently on track, we see increasingly limited opportunities for larger deals, as Comcast bumps against the Federal Communications Commission's contentious cable cap.

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