S&P Picks and Pans: AMD, AIG, IndyMac, Red Hat, DirecTV

Analyst opinions on stocks making headlines Thursday

From Standard & Poor's Equity Research

S&P REITERATES HOLD OPINION ON SHARES OF ADVANCED MICRO DEVICES

AMD; $13.14

AMD announces a plan to offer $1.5 billion of 5.75% convertible senior notes due 2012 in a private offering. The company expects to use the proceeds, along with existing cash, to pay off a term loan from Morgan Stanley Senior Funding that it entered into in October 2006. The notes will be convertible into shares at an initial rate of approximately 49.68, equivalent to about $20.13 per share. Although this may somewhat ease expenses, we remain concerned about the company's financial stability given our view of operating results and capital expenditures. /C.Montevirgen

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP

AIG; $65.47

We view positively AIG's extensive disclosure of its residential mortgage exposure, which was outlined on today's call. AIG units are involved in the origination and insuring of mortgages, and AIG at June 30, 2007, also held $94.6 billion of residential mortgage market related securities, which represented 11.4% of invested assets. Because this represents higher-than-average exposure compared with many peers, we are raising our risk assessment of the shares to "High." Our $80 target price, at 11.3X our $7.05 2008 estimate, assumes AIG trades at a discount to historical averages. /C.Seifert

S&P DOWNGRADES RECOMMENDATION ON SHARES OF INDYMAC TO STRONG SELL FROM SELL

IMB; $21.38

Our downgrade is based on our belief that delinquencies on low-document loans will rise in the coming months. We note that low document loans were largely based on asset value, and we are expecting home prices to continue to decline on a combination of excess inventory and stricter loan standards. IndyMac is making major changes to its underwriting policies. We view this as a long-term positive, but it will likely hurt volume and margins in the near term. We are reducing our 12-month target price by $1 to $17, 6.7 times our 2007 EPS estimate of $2.52, at low end of IndyMac's historical range. /S. Plesser

S&P DOWNGRADES RECOMMENDATION ON SHARES OF RED HAT TO SELL FROM HOLD

RHT; $23.21

Our downgrade is based on valuation after 18% appreciation of the shares in the past week, to a level exceeding our 12-month target price, which we are keeping at $22. We believe Red Hat faces increased competition, as well as more difficult year-over-year comparison one year after the acquisition of JBoss. Sales of Linux servers grew at a slower rate than Windows servers last quarter for the first time in several years. We are keeping our EPS estimates of 36 cents and 54 cents for fiscal 2008 (Feb.) and fiscal 2009. /J.Yin

S&P MAINTAINS HOLD OPINION ON SHARES OF DIRECTV GROUP

DTV; $21.89

Second-quarter continuing EPS of 36 cents ,vs. 36 cents one year earlier, is 2 cents above our estimate. In seasonally slow second quarter, we are disappointed by U.S. net adds of 128,000, higher subscriber acquisition costs and lower margins otherwise, against stronger pricing on HD/DVRs and strides in Latin America. In a move that bodes well for continuity, DirecTV re-signs CEO Carey to Dec. 2010, pending likely imminent change of control from News Corp. (NWS), (to Liberty (LINTA). DirecTV sets a $1 billion stock buyback. We look for the company's update on HD plans and its bundling pact with Clearwire (CLWR). /T. Amobi - CPA, CFA