Thursday July 3, 01:30 PM
S&P Picks and Pans: Yahoo, Apollo Group, UnitedHealth, Starbucks, Consolidated Communications
S&P REITERATES BUY OPINION ON SHARES OF YAHOO INC. (YHOO; 20.20):
Today's WSJ includes an unconfirmed story reporting that Microsoft (NASDAQ: MSFT - news)
(MSFT; 26.87) continues to be interested in some type of corporate transaction with YHOO. Specifically, MSFT is apparently still looking to acquire YHOO's search business, and has approached other media companies about some type of combined effort to effectively buy and break-up the company. We think such a complicated purchase with multiple players is somewhat unlikely. Nonetheless, we view YHOO as undervalued and think it is under substantial pressure to at least seem more shareholder focused. -S. Kessler
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF APOLLO GROUP (APOL; 46.26):
The shares up in premarket as APOL posts May-quarter EPS of $0.85, vs. $0.78 before one-time items, $0.05 above our estimate, on 11% more students, tuition hikes and lower bad-debt expense, outweighing costs of enrollment staff additions and initiatives. We are raising fiscal year 2008 [August] and fiscal year 2009 EPS forecasts by $0.05 each, to $2.75 and $3.15. We favor APOL's initiatives and recent report of further 10% hike in associates degree tuition. But the company has lacked visibility and consistency for over three years and its president just left for new opportunity. Our target price remains 56. -M. Jaffe
S&P KEEPS HOLD RECOMMENDATION ON UNITEDHEALTH GROUP SHARES (UNH; 26.50):
UNH cuts 2008 operating EPS guidance to $2.95-$3.05 from $3.55-$3.60, mainly on competitive pricing, fewer commercial risk members, and higher Medicare costs. UNH is putting fixes in place, and we think the stock's positive reaction this morning reflects market view that its worries have been realized and should recede into the past. We think operating gains will be tough to achieve amid challenges. We cut our 2008 EPS outlook by $0.27 to $2.95 and 2009's by $0.30 to $3.30, but keep a 32 target price. We also think UNH removes overhang by agreeing to settle stock option suits. -P. Seligman
S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF STARBUCKS CORP. (SBUX; 15.76):
SBUX will accelerate U.S. retail restructuring with the closure of a total of 600 unprofitable stores over next nine months. This involves the elimination of up to 12,000 jobs and $428-$448 million of costs, for which SBUX expects net cash outlays of about $100 million. We lower our fiscal year 2008 [September] EPS estimate by $0.20, to $0.65, on our expectation of net charges to be taken this fiscal year. We raise fiscal year 2009 estimate by $0.05 to $1.05 on $0.10 of charges and $0.15 of increased profit. On a rise in our assumed weighted average cost of capital to 11.6% from 10.7%, we lower our DCF-based target price by 3 to 24. -M. Basham
S&P UPGRADES OPINION ON CONSOLIDATED COMMUNICATIONS SHARES TO BUY FROM HOLD (CNSL; 14.72):
In the second quarter, CNSL shares outperformed their integrated telecom services peers, falling 1.5% vs. the 8.5% peer-decline. Given continued market uncertainty, we view this rural carrier and its current 10.5% dividend yield as appealing. Despite an above average net debt/EBITDA ratio, we believe CNSL's cash flow generation is sound due to its relatively stable access line base and cost synergies. We contend CNSL's quarterly dividend is not at risk. On a total return basis, relative to our enterprise value/EBITDA based 12-month target price of 16, we would buy CNSL. -T. Rosenbluth
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