However, a lack of free cash flow, PET capacity increases coupled with slowing growth, and PET industry overcapacity with higher raw material costs force us to rate the stock a Hold with a target of $55.
Portfolio Down? Time to CHL
China Mobile (CHL) remains the leading Chinese wireless carrier with a 70% market share. At the end of June 2008, the company had approximately 415 million mobile subscribers and is recognized as the largest cellular service provider in the world in terms of subscribers count.
China Mobile's market valuation has declined in recent months, which we believe is mostly related to general global equity market weakness and risks associated with the impending overhaul of telecom sector by China's government. However, it remains our view that the emerging and restructured competitive entities will have unanticipated challenges deploying and advancing services to levels and coverage delivered by the China Mobile, the incumbent.
Accordingly, we assess that successful expansion into low-penetration rural regions of China, along with effective network optimization strategies and customized mobile value-added services, establishes China Mobile as the dominant mobile provider, far ahead of its nearest competitors. We maintain our Buy rating while reducing the target price factoring in potential impacts of a more competitive landscape and a comparatively weaker economy in China than six months ago.
eBay Feels Headwind Pressure
eBay (EBAY) is scheduled to report third quarter earnings on October 15. The market is looking for revenues of $2.16 billion and pro forma EPS of $0.41. We believe the company's earnings may fall short of expectations, but its EPS should match the consensus estimate with help from share repurchases.
The company is still exhibiting weak growth in its gross merchandise volume (GMV), which is the total value of successfully closed listings. In the second quarter, eBay's GMV increased just 8.3%, and we think that growth rate could decline further in the third quarter.
Macro headwinds and competitive pressures continue to weigh on the company's core business. Those negatives are offset by its payments business and a rock solid balance sheet. The stock trades at an undemanding valuation of 11x our 2008 EPS estimate, but slowing growth in eBay's core business prevents us from becoming bullish on the stock. We maintain our Hold rating.
Celanese Solid, But a Hold
Celanese (CE) is a global hybrid chemical company based in Dallas, TX. The company produces chemical substances and advanced materials. The company concentrates in four different business segments targeting the consumer and industrial products market: Advanced Engineered Materials (AEM) (16%), Consumer Specialties (17%), Industrial Specialties (21%), and Acetyl Intermediates (46%).
Celanese has a strong growth strategy, with development in Asia as a key factor. There is $400 million of free cash flow per year, primarily focused on share repurchases. There is higher pricing on continued strong global demand for Acetyl Intermediates products.
In addition, the company has leadership positions in oligopolistic markets that have solid fundamentals. However, higher raw material costs and a slowdown in demand from slowing economies in Asia along with a slowdown in the automotive market force us to rate the shares a Hold with a target of $23.
