S&P Picks and Pans: Apple, AT&T, Dell, BCE
Apple Inc. («www.businessweek.com»; $122.34)
Reiterates 4 STARS (buy)
Analyst: Scott Kessler
Apple announces service plans for the iPhone that all include unlimited Internet access, visual voice-mail, 200 text messages, and roll-over minutes. Plans are priced at $59.99 for 450 minutes, $79.99 for 900 minutes and $99.99 for 1,350 minutes. This pricing is lower than we expected, especially given the unlimited Internet access, and we think it will contribute to greater demand for and usage of the iPhone. Apple also announces that iPhones can be activated through iTunes, and we think this will mitigate related strains on the company’s customer service personnel.
AT&T («www.businessweek.com»; $39.08)
Maintains 3 STARS (hold)
Analyst: Todd Rosenbluth
AT&T has announced the voice and unlimited data plans to be offered to customers that purchase the much-hyped iPhone, starting later this week. We view the relatively low entry price of $59.99 as needed to offset the sticker shock we see on the handset. We believe the focus on new product should improve consumer demand for AT&T’s data services on the iPhone and other handsets. While we expect a limited impact on second-quarter results, we project data services growing to $1.85 billion, or 19% of wireless revenues in the third quarter, up from $1.5 billion (16.5%) in the first quarter. Our 12-month target price remains $40.
Dell Inc. («www.businessweek.com»; $27.32)
Maintains 3 STARS (hold)
Analyst: Jim Yin
Dell unveils a new line of notebook computers targeted at the consumer market. They feature a sporty design in eight different colors, hi-def video, and a built-in webcam. This announcement, along with its partnership with Wal-Mart Stores («www.businessweek.com»), is part of a strategy to reignite the company’s revenue growth by developing retail channels. We believe Dell will be modestly successful in this effort, but we think it will take several quarters for it to catch up to Hewlett-Packard («www.businessweek.com») in selling in the retail stores. We are keeping our 12-month target price at $28.
BCE Inc. («www.businessweek.com»; $36.88)
Maintains 3 STARS (hold)
Analyst: Todd Rosenbluth
BCE shares are down as fellow Canadian telco Telus («www.businessweek.com») decides not to make a buyout offer for the company, citing inadequacies of BCE’s bid process. We still expect that BCE will conclude its strategic review in the third quarter, likely culminating in the announcement of a sale to private equity. However, the absence of Telus as a bidder could lower the price. Telus’ decision also implies to us that BCE management is taking an unusually active role in the review and might be concentrating less on improving fundamentals. Our 12-month target price remains $36, supported by 3.6% dividend yield.
