Monday, January 08, 2007

Calls of Note Part 4

UBS has upgraded Tech from E/W to O/W. Firm considers upper teens EPS growth within reach for Tech in 2007, over twice the likely EPS growth for the S&P. Accelerating and superior EPS growth at Tech during a broad profit growth deceleration should help Tech regain some of its historic PE premium.

According to the firm, it's much more than Vista. It's been 7 years since the last major corporate IT capex up-cycle and the increasing need to support more traffic at faster speeds and to store such data have reached a crucial point. Like software, they expect significant enterprise spending growth on communications and storage. The opportunity presented to Tech by the global economy is likely underestimated.

Tech's premium is 30%+, but more like 25-30% adjusted for cash held and more like 10-15% ex. Energy & Financials. If secular 10%+ EPS growth is credible a lows 20s PE is reasonable.

Computers & Peripherals, Comm. Equip. and IT Services join Software at O/W from E/W. Raise Semiconductors to E/W from U/W. They downgrade Healthcare to U/W from E/W owing to waxing political risks and waning cyclical risks. Pharma to U/W from E/W and HC Equip & Services to E/W from O/W. UBS adds EMC to their SSS list and removes GR.

Notablecalls: Not actionable but good to know category. I think the call is major enough to be highlighted as UBS has a pretty good track record over the past yr or so. They went UW Tech early 2006 and upgraded to EW in Sept 06. Needless to say I disagree with their OW rating on Tech here.

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