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Stock Analyst Update

The Week in Stocks: No Surprises from GE

Plus, Esurance prospers, shopping center REITs go on buying spree, and more.

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General Electric's 2Q as Expected
There were no major surprises in General Electric's (GE) second-quarter earnings report, says Morningstar analyst Peter Smith. Strength in GE's capital services business overcame softness in the company's NBC Universal and industrial segments, netting it a 9% year-over-year revenue increase. As such, Smith is leaving his fair value estimate unchanged.
 Full Analyst Report: GE

Internet Auto Insurer Esurance's Prospects Look Strong
Morningstar analyst Justin Fuller met recently with executives at White Mountains' (WTM) auto insurance subsidiary, Esurance, and came away more confident that the unit's growth prospects remain strong. Esurance uses a stripped-down, Internet-based operating model to target younger drivers seeking cheap auto coverage without a hassle. Its electronic approach keeps costs and, thus, premiums down, thereby attracting price-conscious customers. What's more, larger players aren't likely to encroach on this profitable, fast-growing niche due to previous underwriting missteps as well as their desire to sell more-lucrative bundled products that combine homeowner's and umbrella policies. As such, Fuller expects Esurance to clock 25% growth annually through 2011.
 Full Analyst Report: White Mountains

Lowering KB Home's Fair Value Amid Difficult Housing Market
Morningstar analyst Norman Young recently lowered homebuilder KB Home's (KBH) fair value estimate, noting that while the company is likely to post higher revenue in 2006 due to its extensive backlog, slack demand will cut into the top line in 2007 and 2008. That said, Young also observed that despite the difficult housing market, KB boasts several enviable traits, such as an experienced management team with a nose for capital allocation and a well-diversified property portfolio. Those attributes, Young says, should help KB to weather the downturn.
 Full Analyst Report: KB Home

Shopping Center REITs Go on Buying Spree
This week saw two mergers involving four shopping center REITs. Kimco Realty (KIM) bought Pan Pacific Retail Properties (PNP) with a cash and stock offer that valued Pan Pacific at $70 per share. That price represents a 14% premium to Morningstar analyst Ryan Dobratz's previous fair value estimate. Yet, he sees upside in the deal for Kimco shareholders due to cost-of-capital synergies and higher fee income. In the week's second deal, Heritage Property Investment Trust (HTG) sold out to a venture group consisting of Australian-based Centro Properties and privately held U.S. concern Watt Commercial Properties. Though the all-cash $36.15 per share offer price represents only a slight premium to Dobratz's fair value estimate, he expects the deal to close given that Heritage's two largest shareholders have already agreed to vote their shares in favor of it.
 Full Analyst Report: Kimco
 Full Analyst Report: Pan Pacific
 Full Analyst Report: Heritage Property

Morningstar Analysts does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.