S&P Picks and Pans: RIM, GM, Apollo Group, China Netcom
Research In Motion (RIMM; $207.94)
Maintains 3 STARS (hold)
Analyst: Todd Rosenbluth
Following RIM's stronger-than-expected May-quarter EPS last week, we are encouraged by the company's receipt of approval to sell handsets in China. While we see RIM as well-positioned in the U.S., benefiting from higher consumer demand for smartphones, we believe it has sizable international opportunities. We are raising our fiscal 2009 (ending February) EPS estimate by 16 cents to $7.00 and are increasing our 3-year estimated EPS growth rate to 25% from 23%. We are also raising our target price, predicated on peer-based p-e-to-growth analysis, to $210 from $195. RIM plans 3-for-1 stock split later in August.
General Motors (GM; $36.32)
Reiterates 3 STARS (hold)
Analyst: Efraim Levy, CFA
Although reduced fleet sales volume was expected, we are concerned by GM's 21% tumble in year-to-year June light vehicle sales. Also worrisome to us is Toyota's (TM) more aggressive incentives in support of the Tundra truck. We expect GM may respond with profit-draining incentives in the form of discount financing or cash-back in order to preserve its market share in this important category. Despite the month's results and ongoing challenges, we are maintaining our hold opinion in anticipation of potential savings from upcoming UAW negotiations.
Apollo Group (APOL; $57.91)
Reiterates 4 STARS (buy)
Analyst: Michael Jaffe
After Tuesday's close, Apollo said the SEC completed its study of the company's employee stock-option practices, and did not intend to recommend any enforcement actions. Since an Apollo committee uncovered the options backdating in late 2006, the company has made its required restatements and will likely avoid regulatory penalties. We think Apollo's recent concentration on more associates-degree students has started to pay off, and with the options study out of the way, should now be able to place greater focus on rejuvenating its business. We keep our 12-month target price at $66.
China Netcom (CN; $54.90)
Maintains 2 STARS (sell) on American Depositary Shares
Analyst: R. Lin
China Netcom's wireline business remains unattractive to us, with total subscribers largely unchanged from a year earlier at 115 million as of the end of May, reflecting wireless competition. Meanwhile, China Netcom's broadband growth has been slower than we expected. We are lowering our earnings per ADS estimate for 2007 by 5 cents to $4.66 and for 2008 by 10 cents to $4.97. We believe the rise in the ADSs since March has be on potential growth from 3G wireless opportunities, which we do not see as a near-term driver, and on merger speculation. Our 12-month target price remains $49 based on discounted cash-flow analysis.