S&P Picks and Pans: Prudential, TD Ameritrade, Ford, Korn/Ferry, Altera
Prudential Financial (PRU; $100.57): Maintains 5 STARS (strong buy)
Analyst: Tanjila Shafi
Prudential announces today that it is leaving the equity-research business. The company expects the closing of its Prudential Equity Group business to generate after-tax costs of about $72 million. We believe Prudential's departure from its equity-research business is in line with the company's overall cost-cutting strategy. We are maintaining our 2007 operating EPS estimate of $7.16. We are increasing our 12-month target price by $2 to $118, 2.5 times our 2007 book value forecast (before other comprehensive income), above historical multiples.
TD Ameritrade (AMTD; $19.95): Upgrades to 4 STARS (buy) from 3 STARS (hold)
Analyst: Matthew Albrecht
SEC filings show that two hedge funds, JANA Partners and S.A.C. Capital, have built up a position in TD Ameritrade shares representing about 8.4% and are agitating for a business combination with a peer. We believe the converging business plans of entities in the industry make this a real possibility, and we think it would add to shareholder value. We are raising our 12-month target price by $5 to $25, 23.4 times our fiscal year 2007 (September) EPS estimate of $1.07, in line with its historical average, on our view of favorable industry trends and the increased likelihood of a strategic move by management.
Ford Motor (F; $8.26): Reiterates 3 STARS (hold)
Analyst: Efraim Levy, CFA
Based on a review of the company's finalized first-quarter EPS financial results we are narrowing our projected 2007 loss per share by $0.46, to $1.84, and we expect sales to rise 7%-8%, with second half gains stronger than the first half. However, our view of Ford includes challenges from intense competition, lower marketshare, excess capacity, high gas prices and rising legacy pension and healthcare costs. Based on peer comparative price-to-sales multiples, we are maintaining our 12-month target price at $9, or 0.12 times projected 2007 per-share sales.
Korn/Ferry (KFY; $25.41): Downgrades to 3 STARS (hold) from 4 STARS (buy) on valuation
Analyst: Michael Jaffe
April-quarter EPS of $0.35 vs. $0.31, both before one-time items, is a penny below our forecast. KFY continues to benefit from more search engagements in all geographies and business sectors, and an 18% rise in average fees, partly offset by ongoing investments in its businesses. We still see fiscal year 2008 (April) EPS at $1.50 and are starting fiscal year 2009 at $1.70. We expect ongoing gains in U.S. executive markets served by KFY and further growth in its foreign markets, but at a decelerating pace in maturing cycle. Also, recent price gains bring KFY stock closer to our 12-month target price of $27.
Altera (ALTR; $22.99): Reiterates 3 STARS (hold)
Analyst: Clyde Montevirgen
Altera provides a mid-quarter update, reaffirming its previous guidance for revenue growth of 1%-4%. The company says its new product category is experiencing strong sequential growth, which provides reassurance for our projection of second-quarter revenue at approximately $314 million. We are also encouraged by the implied traction for new products, which we think is important amid competitive pressure and end-market demand uncertainty. However, we are somewhat cautious about margin expansion. We would hold, but not add to, positions in the stock.