S&P Picks and Pans: Apple, EMC, Viacom, CNOOC, Polo RL

Analyst opinions on stocks making headlines Wednesday

Apple Inc. (AAPL)

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

Analyst: Scott Kessler

The downgrade is based on valuation. We still think Apple will continue to gain marketshare in desktops and notebooks, and benefit from adoption and usage of iPods and iTunes. We are also optimistic about the launch of the iPhone, which we expect next month. In addition, based on revised peer analysis, we are raising our 12-month target price to $135 from $125. We are expecting significant enthusiasm leading up to next month's week-long Worldwide Developers conference and the iPhone's debut. However, with the stock up 38% year to date and expectations notably elevated, we have risk/reward-related concerns.

EMC Corp. (EMC)

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

Analyst: J. Hingorani

We think slow enterprise spending is affecting most technology companies including EMC, despite its leadership position. Our hold opinion is also based on valuation; EMC shares are trading at 24.5 times our 2007 EPS estimate of 69 cents, slightly above the average for the S&P 500 Computer Storage and Peripherals subindustry group. We are keeping our 12-month target price of $17, but we are downgrading our opinion based on risks we see and slowing demand. We see added volatility from the VMWare IPO to EMC shareholders, which we do not think will materially affect EMC's balance sheet.

Polo Ralph Lauren (RL)

Maintains 3 STARS (hold)

Analyst: M. Driscoll, CFA

The company reports March-quarter EPS of 68 cents, vs. 58 cents one year earlier, finishing fiscal 2007 (Mar.) at $3.73 vs. $2.87, in line with our estimate. For fiscal 2008, we see further investment in the company's multiple growth vehicles, including retail, Rugby, international expansion, and leather goods, as well as new lifestyle brand American Living, which will offer products in 50 categories exclusively at JC Penney (JCP). A $240 million capital spending budget will support another 24 stores and a distribution center. We are reducing our fiscal 2008 EPS estimate to $3.85 from $4.15 to reflect non-cash amortization charges related to recent acquisitions.

Viacom (VIA.B)

Maintains 3 STARS (hold) on Cl. B shares

Analyst: T. Amobi, CPA, CFA

Having spent $2.7 billion under an existing $3 billion stock buyback program set January, 2006, Viacom sets a new $4 billion authorization, though it indicates no timeframe for the new program. While the move seems to us consistent with capital allocation goals set with the company's 2006 operational separation, we view the current pace of share buybacks as somewhat slower than expected. Separately, an unconfirmed Wall Street Journal online report says Viacom agreed to sell its Famous Music business to Sony's (SNE) Music Publishing joint venture for about $370 million, implying an ample valuation for what we view as a non-core business.


Reiterates 5 STARS (strong buy) on American Depositary Shares

Analysts: L. Tan, CFA, L. Cang

We see CNOOC benefiting from higher crude oil average selling prices amid increased geopolitical tension, and we are raising 2007 earnings per ADS estimate to $9.71 from $9.09. We also continue to be positive on the Nigeria-OML130 development, which the company indicates is on schedule for production in 2008. We are raising our 12-month target price by $6 to $115, reflecting added potential value from its P2 reserves, which are not proven recoverable but which we see as generally likely to be recovered, given technology or infrastructure investment.

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