S&P Picks and Pans: Nokia, Palm, Commerce, Timberland, Valspar
S&P MAINTAINS SELL OPINION ON AMERICAN DEPOSITARY SHARES OF NOKIA
We contend that Nokia's proposed acquisition of Navteq (NVT) for $8 billion, pending necessary approvals, is a move to add more services to its new Ovi Internet services platform. We deem this deal as a defensive move in anticipation of slowing handset sales growth and margins. We doubt the company will be able to meaningfully charge for these services. Further, we see difficulties for Nokia to continue to expand and defend its successful handset business on all fronts. We are maintaining our 12-month target price of $32. /I. Soderbom
S&P MAINTAINS HOLD OPINION ON PALM INC. SHARES
Palm posts August-quarter EPS of 6 cents vs. 17 cents, below our 8 cents estimate, after 3 cents for stock option expenses. Revenues were in line, but gross margin was weaker due to rebates and lower priced phones. We believe sluggish revenues and narrowing gross margin will be problematic for Palm in fiscal 2008 (ending May) and we are reducing our EPS estimate by 19 cents to 24 cents. Our estimate is after 13 cents for stock option expenses, but before the impact of a pending recapitalization, which should result in lower interest income and a one-time dividend payment in October. /T. Rosenbluth
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF COMMERCE BANCORP
Commerce announces it will be acquired by TD Bank Financial Group (TD) for about $8.5 billion; 75% in stock and 25% in cash. Under the agreement, Commerce shareholders will receive 0.4142 TD shares and US$10.50 in cash in exchange for each common share of Commerce, a transaction that is currently worth $42 per share; a 6.0% premium to yesterday's closing price. We are raising our 12-month target price by $5 to $42, to reflect the terms of the takeover offer, which, subject to shareholder and regulatory approval, is expected to close by April 2008. /E. Oja
S&P REITERATES STRONG SELL RECOMMENDATION ON SHARES OF TIMBERLAND CO.
We stopped into a Dick's Sporting Goods (DKS) store recently to assess outdoor footwear products. While not a scientific sampling, we thought trends continue to indicate weakness for Timberland, which is still losing shelf space to brands like Merrell, Wolverine and Dick's private label Field and Stream. Most Timberland products we saw were discounted while other brands had only selected markdowns. Considerable space was devoted to sandals, flip-flops and slides, which we think highlights a challenge to all brown-shoe makers as those categories maintain consumer interest beyond hot weather months. /E. Kwon, CFA
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF VALSPAR CORP.
We believe the slowdown in the U.S. housing market has had a more severe impact on Valspar than we previously thought. We think that rising raw material costs, such as oil-derived chemicals and polymers, as well as negative leverage on lower sales volume, will cause gross margins to contract. As a result, we are lowering our October-quarter EPS forecast to 47 cents from 58 cents. For full fiscal 07 (Oct.) and for fiscal 2008, we are reducing our estimates to $1.67 and $1.80 from $1.78 and $2.06, and we are cutting our target price to $27 from $31 based on our revised discounted cash-flow and relative valuation analyses. /C. Lippincott