S&P Picks and Pans: Qualcomm, McDonald's, Xilinx, Citizens

Analyst opinions on stocks making headlines Friday

Qualcomm (QCOM; $41.02)

Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth

A federal ruling, if upheld, would ban Qualcomm and its handset customers such as Samsung and Motorola (MOT) from importing into the U.S. Qualcomm's 3G chipsets into phones that have yet to be launched. While we believe the ruling could be overturned on appeal and contingency plans exist to ship Qualcomm products, we view this as negative for Qualcomm given the high level of handset inventory turnover. We still believe June-quarter results will be strong, but see increased operational risk in late 2007. We are lowering our target price by $1 to $46, on a reduced p-e multiple.

McDonald's (MCD; $51.23)

Reiterates 5 STARS (strong buy)

Analyst: Mark Basham

May worldwide comp-store sales rose 8.7%, with U.S. showing a strong 7.4% increase on breakfast sales and Shrek 3 promotion. We think this clearly shows McDonald's outperforming most of its peers, as well as the restaurant industry in general. The company has laid out an aggressive new product pipeline into 2008, suggesting to us that the company's momentum will continue. We are raising our 2007 operating EPS estimate by 2 cents to $2.80, before an estimate $1.00 second quarter charge for sale of Latin America operations, 2008's by 20 cents to $3.25, and our discounted cash-flow-based 12-month target price by $7 to 65.

Xilinx (XLNX; $27.37)

Reiterates 3 STARS (hold)

Analyst: Clyde Montevirgen

Xilinx provides a mid-quarter update for its June quarter, stating it expects revenues to be in the lower end of previous guidance of 1%-5% sequential growth. However, the company also guided gross margin of 62%-63%, up from previous guidance of 62%, and a 5% decline in operating expenses, compared to previous forecast of a 4%-5% drop. We remain watchful of growth prospects, given what appears to be strengthening in the communication markets. But given a recent quarterly update by its largest competitor, we are not too surprised by the Xilinx's new top-line view.

Citizens Communications (CZN; $15.08)

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

Analyst: Todd Rosenbluth

The shares are down 6% since June 1, creating what we see as an enhanced buying opportunity for this high dividend-paying, low qualitative risk, rural telco. We believe Citizens' relatively strong cash flow margins reflect limited vulnerability to pricing pressures and we look for enhanced services penetration at its acquired properties. We see operating EPS of 68 cents in 2007 and 71 cents in 2008. We keep our 12-month target price at $17, based on a peer-average enterprise value/EBITDA multiple of 7.5. Citizens' 6.6% dividend yield adds to its total return potential.

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