S&P Picks and Pans: Google, Microsoft, AMD, Citigroup

Analyst opinions on stocks making headlines Friday

Google Inc. (GOOG; $548.59)

Reiterates 3 STARS (hold)

Analyst: Scott Kessler

Shares are indicated lower in pre-market trading after Google posts second quarter results. Google misses our EPS forecast for only the 2nd time in 12 quarters as a publicly traded company. Revenues were in line with our estimate, and expenses rose materially on more hiring activity. Google rationalized the greater-than-expected related spending, but we wonder whether it reflects competitive issues. Even though Google has asserted it manages for the long-term, we think a seemingly less significant focus on quarterly performance can hurt results, stock performance and investor sentiment.

Microsoft (MSFT; $31.05)

Reiterates 5 STARS (strong buy)

Analyst: Jim Yin

June-quarter EPS, excluding one-time items, at 39 cents vs. 28 cents matches our estimate. Revenue of $13.4 billion exceeded our estimate of $13.3 billion. Stronger sales of Office and online services were offset by weaker sales of Xbox. Industrywide PC unit sales rose some 11%-13%, as sales to consumers remain robust, but we think enterprise adoption of Vista is going slower than planned. We are increasing our fiscal 2008 (June) revenue growth rate forecast to 12% from 11% and our EPS estimate to $1.73 from $1.72. We are raising our target price to $36 from $35 based on our higher growth outlook.

Advanced Micro Devices (AMD; $15.78)

Reiterates 3 STARS (hold)

Analyst: Clyde Montevirgen

Operating loss of about 89 cents vs. EPS of 18 cents is wider than our 61 cents loss forecast. Sales grew 12% from first quarter, as AMD likely regained microprocessor market share. Sales mix and better unit shipments from new processes lifted gross margin, offsetting higher operating costs and aided operating margin. We think AMD benefited from strong PC demand and market share gains in lower-end markets, but it may have trouble doing so in the higher-end. We are widening our 2007 loss view by 47 cents to $2.84, but raising our 12-month target price by $2 to $17 on our view of better 2008 growth.

Citigroup (C; $51.13)

Reiterates 5 STARS (strong buy)

Analyst: Frank Braden

Second quarter EPS of $1.24 vs. $1.05 is 10 cents ahead of our view. Results were driven by a 34% rise in international revenues. Like many peers, strong capital markets-driven results helped to offset higher credit costs. As expected, increased credit costs resulted form higher expected losses in the company's U.S. cards portfolio and increased delinquencies in second mortgages. While operating expenses rose more than we expected, up 16%, Citigroup still maintained positive operating leverage and much of the expenses were related to increased business volumes and acquisitions. Will update after call.