Allianz Attractively Priced
Allianz Aktiengesell (AZ) is the largest insurer in Germany with a market share of 18% of the property and casualty insurance in that country and is a leader in Europe. The company has over 60 million customers and a presence in more than 70 countries.
We are maintaining our Buy recommendation before the Q2 results due on August 7. Despite the write-down of assets at Dresdner's, Allianz's property and casualty insurance business is doing well with a 17 percent rise in Q1 operating profit. At its current price, valuation is undemanding as the stock trades at a significant discount to its peers.
As a sign of confidence, the company has increased the dividend by 45%. The management expects operating profit growth in the region of 10% per year until 2009, which is higher than our forecast of 7%. On our forecast, the stock is trading at 6.2x 2008 EPADR. Our target price is $20.00.
TDS Outlook Fairly Encouraging
We maintain our Hold recommendation for Telephone & Data Systems Inc. (TDS) prior to upcoming quarterly financial results. Wireless service remains the growth engine for the company as this segment offsets revenue decline from fixed access line losses.
The last quarter's results were essentially in-line with our estimates, but we are not yet convinced that earnings momentum will continue beyond 2008. The company has restated results for prior-year periods to correct certain accounting errors for previously dated reporting. Both TDS and its subsidiary US Cellular (USM) recently resolved delayed filings/accounting issues.
TDS is trading at 16.0x estimated earnings for 2008, which is at a premium to S&P 500, but at a discount to industry group (wireline/integrated telecom service providers) average. On the basis of enterprise value (EV) to estimated 2008 EBITDA, the stock is trading at a discount to its industry peer group. We believe the shares are trading near fair value, considering that the company's above-average growth rate is derived from the wireless unit U.S. Cellular (USM).
Valuations for cellular holdings have been mixed, spurred by recent merger activities, but also impacted by overall economic conditions. Revenues in the first quarter were backed by growth in wireless data services. The management's outlook for 2008 remains encouraging.
