Monday, May 14, 2007

S&P Cuts Opinions on Dell, ADP (Business Week)

From Standard & Poor's Equity Research

Analyst: Dylan Cathers

Our downgrade is based on valuation, following a rise in the shares since the company completed the spinoff of its brokerage services business. We are maintaining our 12-month target price of $52, which is based on a price-to-earnings ratio

of 26.5 times and a p-e-to-growth ratio of about 1.5 times, using our calendar 2007 EPS estimate of $1.95 and assuming a three-year growth rate of 17%. We continue to view the company's fundamentals as favorable, and we look for revenue growth in the low teens for fiscal 2007 (June) and fiscal 2008. Our fiscal 2007 and fiscal 2008 EPS estimates of $1.82 and $2.15 are unchanged.

Dell (DELL)

Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Jim Yin

The reduction is based chiefly on valuation, since Dell shares are approaching our 12-month target price, which we are keeping at $28. While we think Dell will benefit from Microsoft's Vista launch and lower component costs, we see faster industry growth coming from retail stores and international markets, less advantageous to the company's direct sales business model and its focus on North America. Amid shifting purchasing trends, we expect the company to lose market share to competitors with larger international presence such as Hewlett-Packard

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