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S&P Picks and Pans: H&R Block, NDS Group, Weight Watchers, US Bancorp, Real Networks

July 1, 2008

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF H&R BLOCK (HRB; 21.95):

HRB posts April-quarter EPS of $2.11, vs. $1.81, beating our $2.03 estimate. Revenues exceeded our projection. Tax services segment was strong, boosted by the international segment and a higher number of clients. HRB sees fiscal year 2009 [April] EPS of $1.60-$1.70 and hiked its annual dividend by $0.03 to $0.60 a share. HRB authorized $2 billion in stock buybacks for fiscal years 2009-2012, but does not expect purchases until April-quarter of fiscal year 2009. We are positive on HRB’s focus on its core tax preparation business and expect it to gain share. We raise our fiscal year 2009 EPS forecast to $1.65 from $1.56, but keep our 24 target price. -P. Wang

S&P DOWNGRADES ADSS OF NDS GROUP TO HOLD FROM STRONG BUY (NNDS; 49.70):

Private equity firm Permira and News Corp. (NWS; 15.70) announce their intention to take NNDS private. News Corp. currently controls roughly 73% of NNDS through series B shares. Under terms of the deal, NNDS series A ordinary shareholders would receive $60 cash, a 21% premium from Friday’s close. News Corp. also will reduce its NNDS stake to 49% via the sale of its series B shares to Permira, leaving Permira with 51% ownership. NNDS’s pre-market indication is around the offer price. We are lowering our target price by 4 to 60 to reflect terms of the deal. -A. Bensinger

S&P UPGRADES RECOMMENDATION ON SHARES OF WEIGHT WATCHERS INTL TO BUY FROM HOLD (WTW; 36.02):

WTW announces an adverse ruling from the U.K. Court of Appeal concerning value-added taxes on meeting fees and is recording a $0.26 charge, of which $0.04 relates to the first half 2008. We are estimating a $0.03 impact on the second half and are reducing our 2008 EPS forecast by $0.07 to $2.73. Using the new EPS base and a p-e at the low end of the historical range to reflect our concern about consumer discretionary spending, we are cutting our p-e-based 12-month target price by 7 to 46. Well below this level and not reflecting what we see as WTW’s free cash flow generation, buy. -L. Braverman, CFA

S&P MAINTAINS BUY OPINION ON SHARES OF U.S. BANCORP (USB; 28.23):

We are adjusting our EPS estimates to reflect credit deterioration for U.S. consumers. Specifically, we are lowering our 2008 EPS and 2009 EPS estimates by $0.08 and $0.14, respectively, to $2.47 and $2.75. We continue to think USB is one of the more conservative lenders compared to its diversified bank peers in our coverage. As a result, we think USB will likely experience relatively modest securities writedowns in the second quarter and, with its Tier 1 capital of 8.5%, we don’t look for USB to raise capital. We are lowering our target price by 4 to 32, an above-peer 13 times our 2008 EPS forecast. -S. Plesser

S&P REITERATES HOLD OPINION ON SHARES OF REALNETWORKS (RNWK; 6.57):

Starting today, consumers can purchase more than five million MP3 songs from RNWK’s Rhapsody and its partners without digital rights management [DRM] software. Rhapsody has also partnered with others to enable users to sample and purchase music on websites where it is discovered, such as Facebook and MTV.com. Also announced was V CAST Music with Rhapsody, allowing MP3 downloads to Verizon Wireless handsets. Although we still see Apple’s (AAPL; 170.10) iTunes as the world’s leading digital music service, we believe these actions will enable Rhapsody to gain ground. -S. Kessler




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