2008-05-16 12:04:53 -

- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Hewlett-Packard (NYSE: HPQ), Electronic Data Systems (NYSE: EDS), Digital River (Nasdaq: DRIV), Symantec (Nasdaq: SYMC) and Millicom International Cellular (Nasdaq: MICC).

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Here are highlights from Thursday's Analyst Blog:

Upgrading EDS on H-P News

On May 13th, Hewlett-Packard (NYSE: HPQ) announced that it would acquire Electronic Data Systems (NYSE: EDS) for $25.00 per share in cash, or a total of $13.9 billion. The deal is expected to close in the second half of 2008, and we do not expect any anti-trust concerns given the fragmented nature of the IT services industry.

With EDS currently trading at $24.34, slightly below the acquisition price, we upgrade the shares to Hold and set a $25.00 price target as we expect the transaction to close within the next six months. HP plans to establish a new business group, to be branded EDS, an HP company, which will be headquartered in EDS' existing executive office in Plano, Texas. The transaction is expected to be accretive to fiscal 2009 non-GAAP EPS and accretive to GAAP EPS in 2010.

We would be more positive on the stock if EDS is able to post a full year of increased signings. Without continuing momentum in contract signings, top-line growth will be difficult to sustain. Though the company has made significant strides in cost cutting by shifting its headcount to lower-cost geographies, gains on this front are likely to slow as the company reaches the limit of jobs that can be shifted to countries outside that of its customers.

Don't Rush Into Digital River

Digital River (Nasdaq: DRIV) reported revenues of $103.6 million in Q12008, up 13.1% from a year ago and up 6.9% sequentially, and ahead of ours and the consensus estimate of $99 million. Non-GAAP EPS of $0.50 beat our estimate by $0.02. Revenue growth was mostly attributable to ongoing strength in the core business, which grew 29% y/y, offset by weaker than expected sales to Symantec (Nasdaq: SYMC).

Management slightly raised its guidance for 2008. Revenues are now anticipated to come around $401 million, up from the earlier estimate of $395 million on the back of strong revenues in Q1. We have adjusted our revenues and EPS estimates accordingly for Q2 and FY2008. We are maintaining our Hold rating on the stock with a target price of $39.

Fair Trade for Millicom Shares

We maintain our Hold rating and the same valuation target for Millicom International Cellular (MICC), a leading wireless service provider in various emerging markets. Millicom's strategy, which entails substantial capital expenditures in order to upgrade networks and service untapped markets, has paid off with significant growth in its subscriber base.

In the fast-growing markets of Latin America and Central America, Millicom is in the process of phasing out older TDMA and CDMA firmware in order to add high-speed 3G data service capabilities. The company's offerings in African and Asian markets also witness significant subscriber additions. Millicom announced that the company will increase capital expenditures through fiscal 2008, highlighting its expectation of sustainable and profitable expansion over the long run.

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