S&P Downgrades Apple to Hold

Plus: Analysts' opinions on Merck, Hewlett-Packard, and Teleflex

Apple (AAPL; $143.78)

Downgrade to hold from buy based on valuation

Analyst: Scott Kessler

We believe Apple's fundamentals remain strong on market-share gains in desktops and laptops, success with digital-media players and software, and notable inroads in the smartphone category. Based largely on these successes, we believe Apple should trade at a greater premium to the p-e-to-growth rate of the S&P 500 Technology Sector, and we are raising our 12-month target price to $155 from $135. However, we think our downgrade is warranted by risk-reward considerations, especially with expectations high and Apple scheduled to report June-quarter results on Wednesday.

Merck & Co. (MRK; $52.66)

Reiterate buy opinion

Analyst: Herman Saftlas

Second quarter operating EPS rises 12% to $0.82, beating our estimate by $0.10. Key upside drivers were strong sales of Singulair and Cozaar/Hyzaar, new products, a 24% rise in equity income and aggressive cost cutting. Guidance for 2007 EPS rose for a second time this year, to $3.00-$3.10. Merck's pipeline also looks better, we think, with new late-stage treatments for cholesterol, HIV, obesity and arthritis. We view Merck as attractively valued, with estimated p-e-to-growth of 1.3 vs. a group average of 1.5. Our target price stays $59. The $1.52 dividend yields 2.9%.

Hewlett-Packard (HPQ; $48.88)

Reiterate hold opinion

Analyst: Zaineb Bokhari

HPQ agrees to acquire Opsware (OPSW 14.0 NR), a provider of data center automation software, via a cash tender offer, subject to approvals and conditions, that is expected to close before Oct-Q. The purchase price of $14.25 a share is a notable 39% premium to OPSW's Friday closing price. According to market researcher IDC, OPSW is a leading provider of software to manage server provisioning within the data center, an area of rapid growth. We think this acquisition will significantly enhance HPQ's exposure to this area and add a growth driver to HPQ's software franchise.

Teleflex (TFX; $85.37)

Lowers opinion to hold from buy

Analyst: S. Benway, CFA

TFX has agreed to acquire Arrow International (ARRO; $44.30) for $45.50 per share or $2 billion, subject to regulatory and shareholder approvals. We believe the deal will position TFX as a leading maker of disposable medical products, expand overall profit margins, and reduce earnings cyclicality. TFX also said it is considering alternatives for some of its commercial units. Although we believe this is a favorable long-term strategic move, we are concerned about high debt levels and potential integration problems in the near term. Our 12-month target price remains $90.

Before it's here, it's on the Bloomberg Terminal.