S&P Picks and Pans: Deere, Macy's, Best Buy, Nvidia, Toll Bros.

Analyst opinions on stocks making headlines in Wednesday's market

From Standard & Poor's Equity Research

S&P REITERATES HOLD OPINION ON SHARES OF DEERE & CO.

DE; $64.25

Jul-Q EPS of $1.32 vs. $1.18 meets our forecast. Growth was strong in the agricultural segment, especially in emerging markets, but the slow U.S. housing market hurt other segments, and material costs are high. Shares are off 8% this morning, as DE guides for muted profit gains in near-term. We are cutting our FY 08 (Oct.) EPS estimate by $0.10 to $4.90, and FY 09’s by $0.60 to $5.15, as we see DE’s business factors staying on same path through FY 09. We also cut our target price by $12 to $68, 13X our calendar ‘09 EPS forecast and in line with DE’s typical late-cycle valuation. /A. Compton, M. Jaffe

S&P REITERATES HOLD OPINION ON SHARES OF MACY’S INC.

M; $20.30

July-Q operating EPS of $0.29 vs. $0.29 beats our estimate by $0.08. Lower clearance levels hurt sales but drove a 100 bps increase in gross margin. Weighing our expectation of continued effective inventory management against a projected increase in the SG&A expense ratio for the second half of the year amid lower sales and rising Internet business support costs, we keep our FY 09 (Jan.) operating EPS estimate at $1.82 and initiate FY 10’s at $2.00. Applying a peer-median forward P/E of 10.9X to our FY 10 EPS estimate, we raise our 12-month target price by $2 to $22. /J. Asaeda

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF BEST BUY

BBY; $46.07

BBY will begin selling Apple’s (AAPL) iPhone at Best Buy Mobile stores nationwide beginning September 7. We think this underscores BBY’s strong working relationship with AAPL, and provides even greater differentiation from peers. In addition, we believe the iPhone will help grow traffic and sales in this year’s holiday season, which could be weak overall on slowed consumer spending. We are increasing our FY 09 (Feb.) and FY 10 EPS estimates for BBY to $3.37 and $3.58, from $3.35 and $3.54, respectively, and are keeping our $58 DCF-based target price. /M. Souers

S&P MAINTAINS HOLD OPINION ON SHARES OF NVIDIA CORP.

NVDA; $11.07

NVDA reports adjusted Jul-Q EPS of $0.06 vs. $0.29, missing our $0.13 estimate. Revenues fell 23% from Mar-Q, reflecting lower product pricing and weakening desktop sales. Adjusted gross and operating margins were below our view, narrowed on less favorable pricing. We are cutting our FY 09 (Jan.) EPS projection by $0.39 to $0.56 on lower margin estimates and cutting our target price by $3 to $16 on these volatile shares. Though we think the worst is behind NVDA, we see a couple of challenging quarters ahead due to softer demand and notable inventory of older, 65-nanometer parts. /C. Montevirgen

S&P REITERATES BUY RECOMMENDATION ON SHARES OF APPLIED MATERIALS

AMAT; $18.47

AMAT posts Jul-Q EPS of $0.12 vs. $0.34, matching our estimate. Sales fell 28%, due to a 57% drop in the Silicon System Group. We see higher semiconductor and solar equipment orders in Oct-Q offsetting a cyclical decline in flat panel orders. We view AMAT’s increasing backlog positively and project its solar business to reach breakeven during FY 09 (Oct). AMAT believes Jul-Q marks the cyclical trough in orders. We are reducing our FY 08 operating EPS estimate by $0.05 to $0.71 and FY 09’s by $0.04 to $1.05. Our 12-month target price of $23 is based on a P/E ratio above peers. /A. Zino, CFA

S&P MAINTAINS BUY OPINION ON TOLL BROTHERS SHARES

TOL 20.64

TOL posts preliminary Jul-Q homebuilding revenues of $796M, a 34% decline from a year ago and only slightly below Apr-Q; but above our $782M estimate. Lower net new contracts with weak demand and cancellations contributed to a backlog of $1.75B, down 52% from the prior-year level. We believe one positive metric is the decline in asset impairments, which TOL expects to be in the $100M-$200M range when it reports full results later this month, which compares to $288M in Apr-Q charges. In our view, TOL is weathering the downturn better than peers by virtue of its strong liquidity. /K. Leon, CPA