S&P Picks and Pans: Fannie, Goldman, Hovnanian, AirTran

Analyst opinions on stocks making headlines Monday

From Standard & Poor's Equity Research

S&P MAINTAINS BUY OPINION ON SHARES OF FANNIE MAE

FNM; $64.33

Its federal regulator (OFHEO) denies Fannie's request for authorization to grow its investment portfolio, but will continue to reassess its position on the matter. Although the news is disappointing for Fannie, we believe it will continue to benefit from lenders pushing agency-backed loans amid a lack of demand for exotic loans in the secondary market. As a result, we look for a significant pickup in Fannie's second half fee income. We are maintaining our 12-month target price of $75, about 1.7 times core regulatory capital value per share of $43.70 (as of 12/31/06), below historical levels. /S. Plesser

S&P MAINTAINS BUY OPINION ON SHARES OF GOLDMAN SACHS

GS; $180.50

Goldman reports that it and three other investors have made an equity investment totaling $3 billion in the firm's Global Equity Opportunities (GEO) fund. It also says it has reduced leverage and risk in three funds, including GEO. Goldman believes the investment will allow the funds to take advantage of current opportunities, and we think it should allow funding of any redemptions without asset sales. We expect lower asset management revenues as performance fees decline, but we are keeping our 12-month target price of $200. At 2.3 times book value, this is a premium to peers. /M.Albrecht

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF HOVANIAN ENTERPRISES

HOV; $14.70

Hovanian says preliminary third-quarter net contracts and deliveries fell 24% and 31%, respectively, from a year ago. Contract cancellations have risen as contract backlog slipped to 7,126 homes in the third quarter vs. 7,776 in the second. In our view, the rate of quarter-over-quarter declines in these metrics may ease for Hovanian in next few months, but calling a bottom for Hovanian and its peers has proven difficult during the 22-month housing downturn. With Hovanian saying it is in compliance with its debt covenants, we would hold shares for potential recovery in 2008. We will update our outlook after Hovanian's Sept. 6 full third-quarter release. /K. Leon-CPA

S&P REITERATES HOLD OPINION ON SHARES OF AIRTRAN HOLDINGS

AAI; $10.75

AirTran has apparently failed in its bid to acquire Midwest Air Group (MEH), which today announced that its board recommends acceptance of a higher offer from a group led by TPG Capital, that includes Northwest Airlines (NWA). AirTran's tender offer for Midwest Air expired Friday night and was not extended. We think AirTran can build a network in Milwaukee and Kansas City without acquiring Midwest Air, if it so desires. We also think management was spending too much focus on Midwest Air, and can now focus on other alternatives. We keep our 12-month target price for AirTran shares at $12. /J.Corridore