S&P Picks and Pans: Microsoft, Nokia, Bristol-Myers, Newmont
Microsoft Corp. (MSFT; $29.93)
Reiterates 5 STARS [strong buy]
Analysts: Jim Yin, Dylan Cathers
Microsoft will take a $1.05-$1.15 billion pre-tax charge in its June quarter to extend the warranty of its Xbox 360. Any customer who experiences a general hardware failure as indicated by a “three flashing red lights” error message within three years from the date of purchase will have their Xbox 360 repaired or replaced. We consider the charge one-time in nature, and are therefore keeping our fiscal 2007 [June] EPS estimate of $1.49. However, the charge leads us to believe that the Entertainment & Devices Division will remain unprofitable into fiscal 2008.
Nokia (NOK; $28.68)
Maintains 3 STARS [hold] on American Depositary Shares
Analyst: Todd Rosenbluth
We think Nokia will show improved handset sales that should lead to its global market share rising to 37.7% in 2007 from 35.5% in 2006, even as competition in the high-end handset market grows. We believe the gains will help improve gross margins, and we are raising our 2007 earnings per ADR estimate by 9 cents to $1.51 and 2008′s by 7 cents to $1.59. We are also lifting our 12-month target price by $5 to to $30, based on adjustments to our discounted cash-flow model, including a lower weighted-average cost of capital. We also believe NOK deserves a premium valuation on enterprise value/EBITDA analysis.
Bristol-Myers Squibb (BMY; $31.61)
Reiterates 5 STARS [strong buy]
Analyst: Herman Saftlas
A new Phase II study shows ixabepilone effective in metastatic breast cancer patients with chemotherapy-resistant tumors. Last month the FDA granted this drug priority review status, with approval possible by late October. One of a new class of oncology agents called epothilones, ixabepilone is a key component of Bristol’s new oncology therapies, which we think collectively will generate sales of over $1 billion by 2010. We reiterate our target price of $38, reflecting our $32 estimate of the value of Bristol’s present businesses, plus a takeover premium of $6. Its dividend yields 3.5%.
Newmont Mining (NEM; $40.81)
Retains 3 STARS [hold]
Analysts: L. Larkin, S. Benway-CFA
Newmont announces that with the elimination of its 1.85M-ounce gold hedge position, it is now fully unhedged. The move will result in a $531 million second quarter charge. It also plans to discontinue its Merchant Banking unit and sell some of those assets, leading to a second quarter impairment charge of about $1.7 billion. We see these moves as steps to position Newmont as a pure play on gold price movements. Although we expect gold prices to trend higher, our recommendation is based on valuation, reflecting a stagnant production profile we see for Newmont in coming quarters. We maintain our $45 12-month target price.