S&P Picks and Pans: Yahoo, Wachovia, TiVo, WellPoint, Novell

Analyst opinions on stocks making headlines Thursday

Yahoo Inc. (YHOO)

Reiterates 2 STARS (sell)

Analyst: Scott Kessler

Yahoo indicates its chief technology officer Farzad Nazem will resign effective June 8. We see this as a negative; Nazem has been CTO since early 2002, and has been with Yahoo since 1996. We think technology-related efforts have grown increasingly important for the company, in light of Panama and new platforms and partnerships. Nazem's departure will also leave a hole in Yahoo's management, which has seen notable change in recent months. The company will lose Nazem's institutional knowledge, accumulated over 11 years with the company. With shares indicated higher, see see an enhanced selling opportunity.

Wachovia (WB)

Maintains 5 STARS (strong buy)

Analyst: Frank Braden

Wachovia plans to acquire AG Edwards (AGE; 3 STARS, hold) in a stock and cash deal valued at approximately $6.8 billion. The transaction would vastly expand Wachovia's market penetration in California, Florida and Texas, and the combined entity would have a 14% U.S. market share. We believe Wachovia's experience with its venture with Prudential Securities, and 5 other broker integrations since 1998 will help the company achieve its annual expense savings target of $395 million by 2009. The AG Edwards deal is expected to add 2 cents to Wachovia's 2008 EPS and 5 cents in 2009. We are keeping our 12-month target price of $67.


Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

April-quarter EPS of one cent, vs. a loss of 13 cents, is one cent above our forecast. But we view the company's first-quarter metrics as lackluster and second-quarter guidance as cautious. Also, we see continued hurdles to sustainable profit, with deepening churn at its DirecTV (DTV) sales channel, despite long-term mass distribution deals with major cable operators set to launch soon. Still, with several new features and enhancements, we see intense TIVO focus on differentiation vs. generic DVRs. We are raising our target price by 50 cents to $7, on a revised relative price to sales metric.

WellPoint (WLP)

Reiterates 4 STARS (buy)

Analyst: Phillip Seligman

CFO David Colby resigned amid allegations he violated WellPoint's code of conduct, and was replaced by Wayne DeVeydt, who had been chief accounting officer since March, 2005. WellPoint says external legal counsel's probe revealed no illegal conduct, and Colby's policy violations did not impact WellPoint's business. We believe Colby was well-respected by investors and the Street. But we think DeVeydt's background, including a partnership at PricewaterhouseCoopers, gives him the acumen to perform the necessary CFO functions well. We see no changes in WellPoint's strategies.

Novell (NOVL)

Reiterates 1 STARS (strong sell)

Analyst: Jim Yin

April-quarter operating EPS of 2 cents, vs. breakeven results one year earlier, beats our 3 cents loss estimate. Revenue rose 2.6%, led by 114% growth of Linux platform revenue. However, invoices from the Microsoft (MSFT) partnership fell 75% sequentially. We see flat revenue in the next few quarters, reflecting growth in open platform solutions offset by a drop in legacy businesses. We see further headcount reduction needed to achieve targeted operating margin of 5%-7%. We are lowering our fiscal 2007 (ending October) estimate to an operating loss of 2 cents from breakeven. We are keeping our 12-month target price at $6.

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