S&P Picks and Pans: Intel, Sony, Marshall & Ilsley, EchoStar
Intel (INTC; recent price: $24.87): Reiterates 4 STARS (buy)
Analyst: Clyde Montevirgen
Intel is planning to invest $219 million in VMware, a maker of software for virtualization and a subsidiary of EMC (EMC). The agreement, pending approvals, would give Intel approximately a 2.5% stake and a seat on VMware's board after that company's planned IPO in which it expects to sell about 38 million shares at a price of $23-$25. Intel agrees to pay $23 per share for 9.5 million shares. Although we do not see an immediate effect on Intel's income statement, we think that this relationship could drive important synergies in the long term.
Sony (SNE; $53.14): Maintains 3 STARS (hold)
Analyst: E. Kwon, CFA
Sony cuts PlayStation 3 price by $100 to $499 to stimulate sales, bringing the price close to the $480 for Microsoft's (MSFT) high-end Xbox 360 Elite. This was unexpected, after last week's denial by Sony President Chubachi of plans to cut prices to various media; contrary to WSJ's assertion that the move was "widely expected." Sony also introduces a high-end 80-gigabyte PlayStation 3 for $599. With more software titles coming, Blu-ray gaining traction, and Xbox 360's quality problems, we like this move and think accelerating uptake is likely in the coming year.
Marshall & Ilsley (MI: $47.05) : Reiterates 4 STARS (buy)
Analyst: E. Oja
MI agrees to acquire First Indiana Corp. (FINB; $31.18) for $529 million in cash, subject to regulatory and shareholder approval, with closing expected in the fourth quarter of 2007 or first quarter of 2008. By our calculations, the purchase price is relatively high, at 3.7 times tangible equity, 0.25 times total assets, and 0.40 times core deposits. However, we note that FINB's non-performing loans are only 0.30% of total loans, far better than peers. We are keeping our 12-month target price for MI at $53, a slight premium-to-peers at 15 times our 2007 EPS estimate of $3.56, which we leave unchanged.
EchoStar Communications (DISH; $44.56): Maintains 2 STARS (sell)
Analyst: Tuna Amobi, CPA, CFA
An unconfirmed WSJ story names DISH as a possible participant in bid for Dow Jones (DJ), as part of a group led by MySpace co-founder Brad Greenspan. We would not dismiss contemplation by DISH of a potentially limited passive minority stake in DJ. Absent sizable potential synergies, though, such an overture could be motivated by financial, rather than strategic considerations. Still, with both News Corp. (NWS) and DJ seemingly in productive negotiations, we would view the suggested DISH bid as little more than a long-shot attempt for DJ.