S&P Picks and Pans: Microsoft, EMC, ITT, Lehman
S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF MICROSOFT
The European Union's Court ruled against Microsoft, upholding a landmark 2004 European Commission antitrust decision and affirming a $700 million judgment against the company, and stating that Microsoft had abused its dominant market power. Microsoft cannot bundle Windows Media Player with its operating systems and the company will also be required to provide documentation of its operating systems and make its communication protocol more affordable. Although it adversely affects Microsoft, we are not surprised by this decision and view any weakness to the stock as an enhanced buying opportunity. /J. Yin
S&P REITERATES STRONG BUY OPINION ON SHARES OF EMC CORP.
EMC's shares are trading lower in spite of a doubling in the EPS at its VMWare Unit (VMW; $75.1) in the second quarter; a doubling that we see as evidence of the pace of growth in virtualization and of VMWare's leadership. We see virtualization-driven demand for software and consulting services in the storage space benefiting EMC. Our target price of $24 values EMC at a forward 12-month P/E of 27.9 times, implying a P/E-to-growth ratio of slightly over 1. We think shares are attractive, as the price does not adequately reflect EMC's 86% ownership of VMWare or the strength of its core storage business. /J. Hingorani
S&P REITERATES HOLD OPINION ON SHARES OF ITT
We expect ITT's planned purchase of EDO (~~S&P REITERATES SELL OPINION ON SHARES OF LEHMAN BROTHERS LEH $58.65 We are reducing our fiscal 2007 (Nov.) EPS estimate to $7.36 from $8.08, and fiscal 2008's to $6.68 from $8.12. We believe the operating environment in the company's August-quarter was hurt by a deteriorating credit environment that impacted all facets of Lehman's business. We see few positive catalysts in the near term, although we view the company's long-term outlook favorably given its global business model and recent moves to shed underperforming operations. We are keeping our $55 target price, 1.5 times our projected book value at year-end fiscal 2007, a discount to Lehman's historical average. /M. Albrecht