S&P Picks and Pans: IBM, Google, Target, EMC, Home Depot, Sirius
S&P REITERATES STRONG BUY ON SHARES OF IBM
IBM authorized a $15 billion stock repurchase plan, and improved its 2008 EPS guidance to "at least $8.25" from a range of $8.20 to $8.30. Additionally, the company announced product enhancements for its mainframe software lines. We believe IBM's software offerings were enhanced by the completion of its acquisition of Cognos on January 31. Overall, we view the company's breadth of products, broad client base, and financial flexibility as attractive. We are maintaining our EPS estimates of $8.25 for 2008 and $9.30 for 2009, and our P/E-based 12-month target price of $140. /T. Smith, CFA
S&P REITERATES HOLD OPINION ON SHARES OF GOOGLE INC.
Google is down some 6% so far today after unconfirmed reports from Dow Jones Newswires, among others, indicating Google's Jan. paid clicks declined on a monthly sequential basis and were flat with the prior-year period. We think that notable deceleration in Google's Q4 paid-click growth hindered its quarterly financial results, and an indicated continuation of this trend portends unfavorably. While these most recent data could be inaccurate and/or caused by multiple factors, we believe Google is being adversely affected by challenged economic growth and consumer spending. /S. Kessler
S&P MAINTAINS SELL RECOMMENDATION ON SHARES OF TARGET CORP.
Jan-Q EPS of $1.23 vs. $1.29 beats our $1.20 estimate, as tightly controlled hourly payroll expense offset margin pressure from clearance markdowns taken in response to weak sales. We think food is less of a traffic driver for Target than main competitor Wal-Mart Stores (WMT) . Coupled with our view that department stores are offering more compelling apparel, accessories, and home assortments, we think Target is at risk of losing market share this year in these areas. We reiterate our fiscal 2009 (Jan.) EPS estimate of $3.60 and our 12-month target price of $48. /J. Asaeda
S&P REITERATES STRONG BUY OPINION ON SHARES OF EMC CORP.
EMC's VMWare unit (VMW) says major server makers IBM, Dell (DELL) and Hewlett-Packard (HPQ) will embed its server virtualization software in their servers. We think VMWare's lead over competitors in the space is substantial and the vast majority of the available market is untapped. In our view, VMWare benefits EMC's IT infrastructure leadership position, and EMC's 86% equity stake is also a valuable asset. We think EMC is undervalued on a price-to-book basis relative to peers. We keep our DCF and P/E-blended target price at $19. /J. Hingorani
S&P REITERATES BUY RECOMMENDATION ON SHARES OF HOME DEPOT
Jan-Q EPS of 40 cents, vs. 42 cents one year earlier, misses our estimate by 6 cents, as a comp-store sales decline of 8.3% came in wider than our forecast of a 6% decline, leading to the significant de-leveraging of fixed expenses. We expect continued deterioration of the housing market to weigh on results in the near-term, and we are lowering our fiscal 2009 (Jan.) EPS estimate to $1.82 from $2.25. We are initiating fiscal 2010's at $1.99 and are trimming our discounted cash-flow (DCF)-based target price by $1 to $35. But with Home Depot trading at about 16X our fiscal 2009 EPS estimate, a trough year in our view, we think shares remain attractive. /M. Souers
S&P MAINTAINS HOLD OPINION ON SHARES OF SIRIUS SATELLITE RADIO
Q4 loss of 11 cents per share, vs. a 17-cent loss one year earlier, matches our estimate and is 2 cents narrower than Street's view. But aside from pre-announced Q4 net adds, which we viewed as sub-par, we note further degradation in churn and average revenue per user, vs. in-line subscriber acquisition costs. Q4 call offered no insight on the highly anticipated regulatory decision on XM (XMSR) merger, for which we see near-even odds of approval. Our target price stays $3.50, based on relative enterprise value to sales, on our view that auto OEM ramp-up eases fundamental and profit/free cash timing concerns. /T. Amobi, CPA, CFA
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