S&P Picks and Pans: Apple, GM, RIMM, 3Com
Apple Inc. (AAPL; $120.56)
Reiterates 4 STARS (buy)
Analyst: Scott Kessler
Apple's iPhone goes on sale today, and we took in the scene this morning at Apple's Fifth Avenue flagship store in Manhattan, including reporters and camera people, about a dozen news vehicles, and 75 people in line 11 hours before the product is available. We had expected a longer line, but we think recent adverse weather may have had an impact, and we still see "iDay" as a cultural event, solidifying Apple's position among the world's leading consumer technology companies. Our 12-month target price is $135, and we would view any sell-on-the-news pull-back as enhanced buying opportunity.
General Motors (GM; $38.15)
Upgrades to 3 STARS (hold) from 2 STARS (sell)
Analyst: Efraim Levy, CFA
We are initiating 2008's EPS estimate at $3.87 and raise our opinion based on this for valuation. This includes more than 50 cents of savings we expect from upcoming UAW contract negotiations. We have assumed about $350 million in annual costs savings, mostly from employee and retiree healthcare cost concessions. Also, we view the planned sale of the Allison Transmission business favorably as it should enhance liquidity and interest income. We expect the sale to close in third quarter, subject to approvals. On 2008 peer and historical price-to-earnings analysis, we raise our 12-month target price $11 to $39.
Research In Motion (RIMM; $165.59)
Maintains 3 STARS (hold)
Analyst: Todd Rosenbluth
RIMM's May-quarter EPS of $1.17, vs. 67 cents one year earlier, is 3 cents ahead of our view. RIMM's 1.2 million subscriber adds beat expectations, while revenues were slightly below on slower growth in service revenues. RIMM's EPS guidance for the August-quarter bested our projections and support our belief that consumer growth will continue despite pending, but higher-priced, handset competition. We are raising our fiscal 2008 (February) EPS estimate by 68 cents to $5.56 and fiscal 2009's by 60 cents to $6.84. We increase our target price by $20 to $195, using a p-e ratio of 35 times and a p-e to growth ratio of 1.5 times, in line with peers.
3Com (COMS; $4.34 )
Reiterates 2 STARS (sell)
Analyst: Ari Bensinger
Before special items, June-quarter EPS of 2 cents, vs. breakeven results one year earlier, exceeds our one cent estimate as reduced operating expenses outweighed weak sales and margins. While we think 3Com has done an admirable job of resizing its cost structure, we see a continued decline for its legacy connectivity products in an intensifying competitive environment. We also forecast sluggish near-term growth in the Huawei-3Com segment, reflecting a period of integration. Separately, 3Com plans an IPO for its TippingPoint security business. Based on sum-of-the-parts valuation, we keep our 12-month target price at $4.
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