Zacks Analyst Blog Highlights: CME Group, InterContinental Exchange, Solectron Corp. and Flextronics

Business Wire, August 1, 2007

CHICAGO -- 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: CME Group (NYSE: CME), InterContinental Exchange (NYSE: ICE), Solectron Corp. (NYSE: SLR) and Flextronics (Nasdaq: FLEX).

See the latest posts to the Analyst Blog by visiting: http://at.zacks.com/?id=2673

Here are highlights from Tuesday's Analyst Blog:

Merger Assists CME Report

2Q07 earnings came in at $ 3.57 per share for CME Group (NYSE: CME), two pennies ahead of revised consensus, but short of our estimate for the quarter. Growth remained solid with the CBOT-CME merger supporting the stock prices. Revenue came in lower than estimated, owing to lower average rate per contract; though expense control remains exemplary at CME.

The merger will be dilutive to EPS [earnings per share] in 2007, but will add significantly further on. As such, we have moderated our estimates for the remaining two quarters of 2007. We view the $3.44 annual dividend as secure. We are reiterating our Hold on CME. However, we are bumping our target price to $580 per share prior to the company issuing financial guidance for the combined entity during 3Q07.

On July 6, 2007, CME raised its offer for CBOT, the best and final bid offered CBOT shareholders a stock exchange ratio of 0.375, up from a prior proposal of 0.350. The revised terms mean that the CBOT shareholders would receive 36.2% of a combined company, up from 34.6%. As of closing prices on that date, CME's bid was worth about $11.9 billion, versus InterContinental Exchange's (NYSE: ICE) offer of $11.8 billion. On July 12, 2007, CME and CBOT announced the completion of the merger of their companies. The combined company, CME Group Inc., will trade on the New York Stock Exchange and NASDAQ under the ticker symbol CME.

Acquisition Should Help FLEX

With the announced acquisition of Solectron Corp. (NYSE: SLR), we believe Flextronics (Nasdaq: FLEX) will be a consolidator of the industry given its relatively strong competitive position and size. We believe that the industry revenue growth is stagnating and consolidation will continue for the foreseeable future.

Although we are negative on the industry as a whole, we rate Flextronics a Hold given its leadership position. We maintain our six month target price of $12.00.

With continued weakness in residential real estate, the consumer business is likely to remain weak, which could pose a risk for FLEX as 20% of its revenue currently comes from the consumer business. Europe has demonstrated weakness for the past year, but is the only region showing year-over-year declines for Flextronics. Further, in the ODM [original design manufacturing] market, competition is intensifying rapidly.

See the latest posts to the Analyst Blog by visiting http://at.zacks.com/?id=2645

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