S&P Picks and Pans: Netgear, VCA Antech, Intel, BP, Amgen
Netgear (NTGR; $31.75)
Upgrade to buy from hold, on valuation
Analyst: Ari Bensinger
NTGR posts second quarter EPS $0.35, vs. $0.28, below our $0.39 estimate on a 5% sequential decline in sales, below our forecast, reflecting higher seasonality. However, we see see strong growth opportunities ahead with the transition to an improved Wi-Fi 802.11n specification, a trend towards digital content being viewed on home televisions, and the emergence of Wi-Fi mobile phones. We also see NTGR expanding its channel relationship with service providers, although we caution that this business can fluctuate. Based on peer-average p-e, our 12-month target price is $42.
VCA Antech (WOOF; $40.88)
Analyst: Michael Souers
WOOF posts second quarter EPS of $0.42, vs. $0.35, $0.02 higher than our estimate. We think the company's animal hospital same-store revenue growth of 6.6% underscores the strength of the pet health care industry, regardless of the temperament of the overall economy. In addition, WOOF continues to garner synergies through acquisitions, and we are increasing our 2007 and 2008 EPS estimates to $1.41 and $1.66, from $1.38 and $1.61. We are also raising our DCF-based 12-month target price by $2 to $44. But with shares trading at about 26.5 times our 2008 EPS estimate, we would not add to positions.
Intel (INTC; $23.90)
Reiterate strong buy
Analyst: Clyde Montevirgen
The European Commission says the company has committed antitrust violations. The allegations include INTC rebates to keep business, payments to customers to delay launching products with AMD (AMD; $14.63) chips, and pricing chips below cost to bid against AMD. INTC's says its actions have been lawful and pro-competitive. Although we think the timing of charges may slightly benefit AMD as it launches new chips and will add to legal costs for INTC, we believe chip innovations and margin expansion remain the key issues for the company in the near-term.
BP P.L.C. (BP; $70.90)
Analyst: Tina Vital, Stewart Glickman
Second quarter operating earnings of $5.35 billion, vs. $6.11 billion, before non-recurring gains of $738 million, beats our estimate by $987 million. Oil and gas production fell 5.3% to 3.80 million barrels per day, 0.8% below our estimate, and we see a modest drop for full-year 2007. After updating our models, we are raising our 2007 operating earnings per ADS estimate by $0.58 to $5.88, and 2008's by $0.30 to $5.48. Our DCF model yields intrinsic value of about $71, but our relative valuation, using a peer-discount 6.9 multiple on projected 2008 EBITDA, shows $78. Blending the two, we are raising our 12-month target price by $2 to $75.
Amgen (AMGN; $56.16)
Analyst: Steven Silver
After option expense, second quarter EPS of $1.09 vs $1.01 beats our $1.02 estimate, as 14% higher Enbrel sales and share repurchases offset impact of 19% decline in U.S. Aranesp sales amid safety warnings. We expect stabilizing but lower sales after third quarter regulatory meetings, but note robust Phase III data for key pipeline drug denosumab. We see a revenue contribution in 2009, and maintain a favorable view of AMGN's pipeline. We are lowering our 2007 and 2008 EPS estimates to $4.16 and $4.40 from $4.18 and $4.71, respectively, and reduce our 12-month target price by $4 to $66 on p-e analysis.